Cool reception for Social Democrats’ bank tax proposal

The Social Democrats will campaign for October’s general election on a pledge to introduce a special tax on banks. Party leader Bohuslav Sobotka says the new taxes would help fund schools and infrastructure and stop profits leaving the country. But critics say the move could lead to higher charges for customers and create financial instability.

Bohuslav Sobotka, photo: archive of Czech Government

Eight months before the next general election, coalition leaders the Social Democrats say they will campaign on a pledge to bring in special taxes on Czech banks, the vast majority of which are foreign owned.

Introducing the proposal on Tuesday, party leader and prime minister Bohuslav Sobotka said the tax would have four rates, depending on the size of a bank’s assets.

The highest rate would be of 0.3 percent and would hit banks with assets of CZK 300 billion or more.

According to Mr. Sobotka, the scheme would bring an extra CZK 11 billion into the state coffers every year.

What’s more, he says, similar taxation already exists in countries in the region.

“If you look at the map of Central Europe, in Germany, Poland, Austria and Slovakia – all our neighbours – they have special taxes on banks. And thanks to this, more money remains in public budgets. A number of those countries have foreign banks that take out significant sums in dividends, like in the Czech Republic. The tax we take from banks will stay here and can help finance education or pensions. Since the year 2000 banks have removed almost CZK 500 billion in dividends. That’s no small amount.”

Critics say that it was a Social Democrat-led government at the turn of the 2000s that oversaw the sell-off of Czech banks to foreign institutions in the first place.

They also say that a tax on banks would ultimately be paid for by customers, who would face higher charges.

Unsurprisingly, the financial institutions themselves have also come out against the idea. Pavel Sobíšek is the chief economist at UniCredit Bank.

Photo: janeb13, Pixabay, Pixabay License

“Under the Social Democrats’ proposal, the banks would serve for regular state expenditures, which is unequivocally bad. Any kind of financial crisis that also led to a crisis in the banking sector would mean the state would have to reduce its expenditures. Because the banks would be able to pay less of this tax. And that would cause a decline in GDP.”

The question remains as to whether the Social Democrats would ever be able to make this tax plan a reality.

The party are trailing in the polls and even if they do manage to be part of the next government the idea has been rejected by its current coalition partners and opposition parties alike.