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Center MP: Estonia should lay down a temporary solidarity tax on banks

SEB and LHV headquarters in Tallinn.
SEB and LHV headquarters in Tallinn. Source: Siim Lõvi /ERR

The Estonian banking sector should have a temporary solidarity tax imposed on it from this year until 2027 to alleviate the country's dire financial situation, Andrei Korobeinik, the Center Party's deputy Riigikogu whip said.

On Wednesday, Korobeinik submitted a draft decision for the imposition of a temporary solidarity tax. He says Estonia's financial situation is so dire that not even €10 million can be found for a teachers' salary increase, and there's no point in even talking about major infrastructure investments or electricity grid upgrades.

"By taxing the annual profits of banks operating in Estonia at 50 percent, we can solve several problems at once," he said.

In Korobeinik's opinion, the tax should be levied where the money is, and it is completely wrong to tax ordinary people in the conditions of a two-year recession and increasing unemployment.

"The banking sector's revenues have increased primarily as a result of the rise in Euribor. For example, Swedbank earned a net profit of €385 million in Estonia last year, which is almost twice as much as the year before. We are likely to see a similar increase in profits for other banks as well, with the sector's total profit expected to exceed one billion euros," the MP said.

According to Korobeinik, a temporary tax would not have a significant adverse effect on the ability of banks to issue loans or provide financial services. He noted that Estonian customers pay considerably higher loan interest rates than citizens in Scandinavia, and repayment discipline remains high despite the deteriorating economic situation.

"Based on last year's economic indicators of the banks, we could get an additional €500 million for the state budget. This can be used to finance social and educational projects, as well as infrastructure and environmentally sustainable initiatives. The banking sector is one of the few that has managed to increase its profitability during a difficult economic period. Therefore, it is appropriate for them to contribute more to the financing of benefits, especially at a time when many other sectors and members of society are struggling," said Korobeinik.

On Wednesday, Swedbank announced that its net profit in Estonia last year was €385 million, almost double that of 2022.

In September last year, the Social Democrats proposed to the coalition partners to take a total of €951 million from the banks over three years through a special windfall tax. Prime Minister Kaja Kallas and then leader of Estonia 200, Lauri Hussar, did not support the proposal, arguing that the bank tax could make lending more expensive.

In the same month, Kallas reached an agreement with commercial banks, allowing them to avoid the bank tax. In return, the banks agreed to pay higher dividends in 2023, which would support the state budget as they are taxed with income tax.

The decision received criticism, including from representatives of the Bank of Estonia, as the income tax rate will be higher in 2024, meaning the banks will effectively pay less income tax.

Lithuania introduced a bank tax last May, taking 60 percent of net interest income as a solidarity tax, which exceeds at least half of the average net interest income of the last four years. In the second quarter, banks in Lithuania paid €56 million in bank tax, while payments for the third quarter reached €102 million.

Lithuania is investing the revenue from the bank tax into national defense.

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Editor: Karin Koppel, Marcus Turovski

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