Bank Windfall Profit Tax Becomes a Swiss Political Discussion

With Swiss banks generating record profits in their interest-rate businesses, the topic of a windfall profit tax is back the agenda. finews.com makes inquiries in Bern.

Italy sent shock waves through the European banking landscape yesterday with news the government of Prime Minister Georgia Meloni wants to enforce a special profits tax on the interest income of banks domiciled there. The uproar was so great that politicians rowed back the measure somewhat and restricted the scope of the windfall tax.

Energy Sector Proposal

However, the turnaround in interest rates is not only pumping lavish profits into the coffers of Italian banks. As the semi-annual results of local financial institutions suggest, Swiss retail banking in particular is heading for an absolute bumper year. In the interest business, earnings in some cases are multiplies of what they were last year.

In addition, the Swiss National Bank (SNB) paid 3.3 billion ($3.8 billion) in interest to the banks on their sight deposits in the first half of the year.

Results like that put the issue of a special profit tax in Switzerland back on the agenda. Such a levy was hotly debated last fall in connection with the enormous profits of the utility industry, which had shortly before been provided with state bailout funds. At the time, the Social Democratic Party (SP) wanted to channel presumed excess profits in the energy sector into government coffers which found a supporter in SP Federal Councilor Simonetta Sommaruga, who was the energy minister at the time.

Differing Opinions

In response to an inquiry from finews.com, SP National Councillor and member of the Committees for Economic Affairs and Taxation (WAK) Cédric Wermuth says an excess profits tax should be levied on Swiss banks. «However, there needs to be a general excess profits tax. We are trying to push that through in parliament.»

On the other side of the political spectrum, Swiss People's Party (SVP) National Councilor and WAK member Thomas Aeschi is strictly against such a tax. A special profit tax on bank earnings would be completely arbitrary, he points out. «Why should one sector be burdened, but not the other? Moreover, the SVP is fundamentally opposed to new taxes.»

Considerable Uncertainty

A special profits tax would be a non-starter in the industry itself. The Swiss Bankers Association (SBA), says that windfall taxes are generally considered to make little sense. «For the companies concerned, they mean considerable legal and planning uncertainty and worsen the attractiveness of the location.» Moreover, the lobby organization points out that profits from the interest business are already burdened with the usual profit taxes.

Implementation in this country is likely to prove a sticking point. The Federal Council already pondered the question of how much profit is too much for a company, and the SP's proposal was rejected last fall. 

It remains to be seen whether the issue is still suitable as an ingredient for this fall's upcoming parliamentary elections.

Collaboration: York Runne