Andalucia, Extremadura, the Canary Islands and Asturias regional governments established a banking tax that varies based on a bank?s volume of cash deposits. Finance Minister Cristóbal Montoro turned this into a national tax, but says that he does not want the tax to become a reason for confrontation. This attitude reflects a change in his approach. Initially he established a 0% national rate to neutralize the tax and last March he raised the tax to 0.2 per 1,000 with the intention of giving regional governments some increased revenue. Their 2013 budgets counted on this revenue.
A Constitutional Court ruling made this past July allowed Asturias to charge the tax, and this ruling has influenced Montoro?s change of direction. But the root of the matter was left to be dealt with another time. The European Commission approves the tax and the banks have accepted it as a minor issue.
Almost certainly, banking customers will end up paying for the tax. Even though the rates are very low, the banks are still getting through trying times. Their business shrank 5% during the first half of the year.
The banking sector cleanup process has required the banks to amass large provisions and they are still preparing to face new stress tests in 2014 and adapting to Basel III regulations. Only time will tell whether this tax can increase revenues for the government, but it could be a major resource for the regions. Increasing their ability to collect taxes is a key factor to fixing the way regional governments finance their operations.