I. Šimonytė lashes out at those who do not intend to support the solidarity contribution of banks: 'It's easy to be a liberal and say there is no need for taxes'

Viktorija Čmilytė-Nielsen, President of the Seimas, says that the Liberal Movement Group plans not to support the bank solidarity contribution tabled in Parliament on Thursday. According to her, it is unacceptable for the Liberals to tax a „doing too well“ sector.

„We have agreed in the group that we plan not to support a bank solidarity levy. I have already said publicly and repeatedly that the principle itself is not acceptable to the Liberals when the state decides which sector is doing too well in the state's opinion and taxes it,“ Ms Čmilytė-Nielsen told reporters in the Seimas on Thursday.

„We would think, and I think, that this principle is not right, and that is why we do not plan to support this bank solidarity levy, even though we recognise that the objective of financing defence infrastructure is a very noble and worthy one“, she said.

„Profit expropriation sends a bad message to foreign investors that Lithuania's tax environment is unstable. Moreover, this imposition of solidarity is perverse because the duty of solidarity applies only to one sector of business. In other words, it is a robbery disguised as a noble cause,“ stressed the group's elder Eugenijus Gentvilas.

According to the Bank of Lithuania, the total profit of the country's banks last year amounted to around EUR 0.5 billion and is expected to exceed EUR 1 billion this year. The state expects to absorb around EUR 510 million of these profits, or rather net interest income, by applying the Law's requirement until the end of the payment period in 2024.

According to the politician, the banks also pay a 20% corporation tax yearly.

„The Seimas is likely to approve this tax, but the Liberals will keep their heads down to ensure that the revenue collected from banks' profits is not diverted to fund military infrastructure,“ said Gentvilas.

Eivilė Čipkutė, president of the Lithuanian Banking Association, who met with the Liberals on Thursday, conveyed the opinion of foreign investors that the introduction of the tax would mean that „they will no longer be able to say a good word about this country“.

Prime Minister Ingrida Šimonytė insists that the draft law on the solidarity contribution of banks must be adopted because it has become „a moral issue“. Meanwhile, speaking about the arguments of politicians opposing the tax, she said that it is easy to be liberal on tax issues in Lithuania and say that there is no need for it.

„Tax is such a fascinating issue in Lithuania that it is very easy to be a liberal and say there is no need for taxes. But then, when it comes to the question of budgeting and allocating additional funds, most people turn into social democrats and know what can be allocated and how much. This is not the way the money comes,“ Šimonytė told journalists at the Seimas on Tuesday.

„It is popular to speak out against taxes. People probably think it is, it is their political attitude, and I cannot be angry with them about it,“ she said.

The politician pointed out that the economic measures for which the levy is being proposed are very serious – the European Central Bank's (ECB's) very rapid change in monetary policy has resulted in a lot of extra income for commercial banks, she said.

„It is not income from more efficient activities, nor from more extensive activities. It is simply rent, in economic terms – when you don't have to do anything too much, and the money comes to you because practically your entire loan portfolio is at floating rates because you don't have to go to the market because you have excess liquidity,“ explained the Head of Government.

„This effect will not last forever, but it is our understanding that it is also a moral issue,“ she said.

I. Šimonytė also stressed that the banks' solidarity contribution will be allocated to the national defence infrastructure as a universal good, as Lithuania needs to pay an „extra premium“ for a bad neighbourhood.

„Investing in national defence is the best investment we can make to mitigate risks (...). If the Seimas does not approve the proposal, I will be very sorry, which means that the state will have to borrow money at 4.5% for the same purposes, and the taxpayers will lose out on the interest“, the conservative said.

S. Skvernelis: We will support it, but the money must be spent elsewhere

Saulius Skvernelis, chairman of the Democratic Union „Vardan Lietuvos“ (In the Name of Lithuania), says his group intends to support the draft law on bank solidarity contributions at the presentation stage. However, he said, there is a clash of positions on where the contribution is to be used, so after the submission, an alternative will be proposed on where the solidarity contribution should be spent.

„At this stage (of the tabling – ELTA), we will support the solidarity levy because we think it is necessary, but in principle, the positions clash on where it is to be used. We do not see today that it is socially fair to charge those people who have made a profit for the bank by taking out housing loans (...), and this should be used, even if it is for an important purpose, the defence of the country, but there are sufficient funds available both from the budget and other sources of funding,“ Skvernelis said.

„If it is approved after submission, we will submit our own proposals to link and allow people to repay part of the interest on their down payments on their first homes,“ he said.

The Minister for Economic Affairs and Innovation, Aušrinė Armonaitė, insists that the Free Movement's position on the solidarity contribution of banks is sceptical and that the bill will be abstained. She highlights the negative impact on the investment climate and the competitiveness of banks in the country.

„(The position – ELTA) is sceptical, and we will abstain. There are several problems with this draft. The first is that there is no clarity as to whether the additional burden that is being placed on these market players will not fall on the shoulders of the banks' customers. The second thing is that there is really little competition between banks in Lithuania, which is part of the reason why the conditions for people in Lithuania to use banks are sometimes not so favourable. There is little competition, there is high concentration, we want to let in more market players, so the investment environment has to be more stable,“ said Ms Armonaitė.

„Not long ago, the 20% corporate tax was applied exclusively to banks, now this solidarity contribution does not contribute to the stability of the jurisdiction, and stability is the main argument for investors to come,“ she noted.

The politician pointed out that it is also bad that the contribution is planned to be applied retroactively, which raises questions about the legislation.

„I understand that there will be a retroactive application of this contribution. If the Seimas adopts it, it will enter into force on 1 January (next year – ELTA), but for 2023, there are legislative issues. I think we can do better. These are the main arguments why we will not support it,“ the „free place“ said.

A. Armonaitė explained that there are other ways to invite banks to be more solidary in their talks with the banks.

„(We can – ELTA) invite them to reconsider their margin policy towards Lithuanian clients. If the Seimas were to approve such a tax, this particular money is the only defence infrastructure that can be justified as an area that can be financed,“ the Freedom Party chairwoman said.

Finance Minister Gintarė Skaistė says that the Bank of Lithuania's (BoL) assessment is that the solidarity contribution of banks will not affect the country's financial stability. According to her, the contribution is only directed at the exceptional profits generated by the circumstances and not at business investment decisions.

„In the Bank of Lithuania's assessment, such a contribution would not affect financial stability in Lithuania, as it would only be directed to those exceptional opportunities and exceptionally generated profits that are the result of circumstances rather than the result of business investment decisions.

In such a case, according to the Bank of Lithuania's assessment, there would be no impact on financial stability, so such a decision is possible and necessary,“ said G. Skaistė, noting that the planned amount to be received from the solidarity contribution could still change if the LB's assumptions were not confirmed.

The Minister also assured that the negative position of the European Central Bank (ECB) on the solidarity contribution of banks was taken in the context of the original draft law, which had been adjusted.

„In principle, many of the comments made in the ECB's position have been taken into account, and the base on which the solidarity contribution is levied has been adjusted. It has also been agreed that new loans are not included in the taxable base of the contribution, and, at the same time, other decisions have been taken which allow the elimination of the risks identified in the ECB's note. Many of the comments have been taken into account,“ explained the Conservative.

Ms Skaistė considers that the chosen solution for the contribution is legal and fair. She also expects the support of the opposition forces for this and other tax changes.

„I would like to believe that the tax changes could receive wider support because continuity is very important in tax policy,“ she stressed.

ELTA recalls that on Thursday, a draft law on the temporary solidarity contribution of banks proposed by the Ministry of Finance will be presented to the plenary session of the Seimas.

The draft law aims to determine the amount of the temporary solidarity contribution, which is applied in the event of unexpected significant financial results due to the application of state support measures to stimulate the economy, inflation and changes in monetary policy. The purpose of the use of the funds received and the procedure for calculating, declaring, paying and administering the temporary solidarity contribution.

It is also proposed that the funds raised through the implementation of the Law be used to finance projects for military mobility and dual-use (civilian and military) transport infrastructure, as well as for the adaptation and/or establishment of military infrastructure necessary to provide host country support.

Vilija Blinkevičiūtė, Chairwoman of the Lithuanian Social Democratic Party (LSDP), has expressed her support for the solidarity contribution of banks.

The initiators argue that, due to the exceptional circumstances caused by the changed geopolitical situation following the outbreak of the war in Ukraine by the Russian Federation on 24 February 2022, the need to finance projects for the adaptation and/or creation of military mobility and dual-use (civilian and military) transport infrastructure, as well as the military infrastructure needed to provide host country support, has increased significantly in order to speed up the deployment of NATO allied defence forces in Lithuania.

The implementation of the legislation is projected to raise around €130 million for the State budget in 2023, €230 million in 2024 and €50 million in 2025 under the most likely scenario.

The temporary solidarity contribution will be applied to all credit institutions without applying the €400 million, i.e. 1% of the total resident deposit threshold, but the base will be subject to a coefficient reflecting the share of each credit institution's activity in Lithuania. This reflects the fact that the atypical situation has arisen mainly due to economic processes and operational and market imperfections in Lithuania and not due to the business decisions of financial institutions.