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9 August 2023

Giorgia Meloni’s bank job

The Italian prime minister’s windfall tax isn’t quite as radical as it appears.

By David Broder

August is, by convention, a month when Italians head for the seaside. However, strained budgets and time pressures mean not everyone can get away: a recent survey suggests most Italians will get a week at the beach, but 9 million will miss out. The August parliamentary recess isn’t what it used to be, either. Italian media jargon used to speak of the short-lived “beach governments” created in summer to push through unpopular measures on the sly. Yet the Italian prime minister Giorgia Meloni has used the summer break to seize the political initiative, through an eye-catching cost-of-living measure.

On 7 August, with parliament already broken up, the deputy prime minister Matteo Salvini announced a 40 per cent windfall tax on banks’ “extra profits”. “One has only to look at banks’ first-half [of the year] profits,” he told a press conference “to realise that we are not talking about a few million, but… of billions” of euros extra for a sector that has profited from high interest rates. He explained that other Italians were taking a hit, with banks not passing on the benefits to savers: “If the burden deriving from the cost of money has… doubled for households and businesses, what current-account holders receive has certainly not doubled.”

The announcement was a surprise, and pro-government outlets struck a triumphant tone. The right-wing daily Il Giornale proclaimed this a “Robin Hood” measure, a label duly circulated by Meloni’s allies on social media. Representatives from both her Fratelli d’Italia party and Salvini’s Lega queued up to celebrate a move that, they said, takes money from banks and “puts it back into the pockets of Italians” or, indeed, “the hardest hit”. They emphasised the concern to help household borrowers affected by the European Central Bank’s latest interest rate rise, with the 3.75 per cent deposit rate the highest since the single currency was introduced.

The Economy and Finance Ministry had earlier dismissed rumours of such a raid on “extra profits”, and on 8 August stocks tumbled in reaction to the news, with losses led by the banks most directly concerned. Critics accused the government of “burning €9bn”, the amount bank capitalisation fell. Ahead of the August bank holiday, the liberal economist Carlo Cottarelli wryly asked why there should not equally be a windfall tax on seaside resorts, alluding to the right-wing parties’ perceived favouritism towards often shadowy beach-umbrella establishments.

Forza Italia, the third party in the government, seemed more ill-at-ease. Its new leader, the foreign minister Antonio Tajani, insisted the move was not a “measure against the banks” but designed to help out under-pressure mortgage holders; lamenting the hit to bank stocks, the party’s parliamentary chief Paolo Barelli mooted possible changes when the legislation is discussed in September. Later on Tuesday, once the markets had closed, it was specified that there would be a cap on the tax (0.1 per cent of the relevant banking institutions’ balance sheet), an announcement apparently responsible for bank stocks rebounding this morning (9 August).

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Some outspoken fiscal hawks damned the whole policy. The economist Luigi Marattin, an MP for former prime minister Matteo Renzi’s centrist Italia Viva party, termed Meloni the head of a Soviet-style “Politburo” that was “requisitioning profits”. The larger opposition parties were markedly less critical, notably the Five Star Movement, an eclectic force that has recently pulled towards a welfarist agenda. Its leader Giuseppe Conte (another former prime minister) insisted that Five Star had proposed such a measure since March but been wrongly “accused of demagogy”. The centre-left Democratic Party’s Andrea Orlando similarly said the government had “accepted our proposal”, deeming this move “better late than never”, but insisting that Italy needed a wider redistributive agenda.

Is this an affront to the banks, a rebuff to neoliberalism, even the harbinger of a clash with Europe? Not really – and not only because past windfall taxes have often delivered much less revenue than expected. The announced measure is not even an example of tax-and-spend, in the sense of public investment, but proposes to recoup a part of banks’ “unearned” profits to help household borrowers, by means of as-yet unspecified tax breaks. This follows a pattern established by Meloni’s first budget, passed last December, which promised to help households confront high energy bills through a series of tax reliefs, while offering special exemptions for large families.

Efforts to paint the government’s economic agenda as “left wing” are wildly misplaced. The windfall-tax announcement used elements of populist rhetoric, in so far as the government accused opposition parties of allying to financial interests: the Meloni ally Giovanbattista Fazzolari claimed the government “had the strength to tax the banks” where a previous centre-left coalition had not because Fratelli d’Italia “has no privileged relations with the banking system”. Yet he insisted that the concern was to “balance the supply and demand of savings and investment” and that “investors can rest easy”. If this move drew on a certain criticism of banks’ unearned profits, it was conducted in the name of homeowners and small businesses.

In reality, Italians at the bottom end of the income scale have more to fear from this government than those at the top. December’s budget announced a phasing out of citizens’ income, an up-to-€780-a-month benefit for low earners and the unemployed that had been introduced in 2019. Meloni’s party has long damned “handouts” to those who “stay on the sofa” rather than find work. In July, 169,000 families received text messages telling them their payments would stop imminently. The government is replacing this with a more restrictive workfare scheme, offering a meagre €350 a month.

Meloni is, doubtless, setting the political weather this summer, with the bank-tax announcement also helping turn attention away from last weekend’s scandal over historical revisionism. As for the opposition parties, their main attempt to impose a change of direction and answer the cost-of-living crisis lies in a call to introduce a national minimum wage. Meloni has agreed to meet opposition leaders on 11 August to discuss their proposals, though the right-wing parties show little sign of dropping their long opposition to such a move. For many Italians unable to get away this August, nothing could be more welcome.

[See also: The end of globalisation]

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