The European Central Bank (ECB) asked the Polish government in a letter on January 12 to consider the potentially negative effects of its plan for a bank tax.
The EU's central bank called on Warsaw to look thoroughly at any dangers the levy could pose to the stability of the banking sector, or to the wider economy should it limit lending. The country's banks have seen profitability hit hard by low interest rates, government schemes to help borrowers with forex loans and deposit insurance schemes.
The bank tax was a flagship campaign pledge from Law and Justice (PiS) in the run up to its victory in the October election. A bill introducing the levy has now passed most parliamentary procedures and is awaiting the nod from the upper house before it gets sent back to the lower house and then to the president.
The legislation seeks to apply a 0.44% on assets held by banks, insurers, credit unions, and loan companies. PiS hopes revenue from the tax will total as much as PLN6bn annually and has earmarked the funds to help drive a raft of social spending pledges.
According to the ECB, while there are examples of similar taxes in the EU, they were typically enacted in order to deal with “specific risks stemming from the financial sector” or related to “former public support to the financial sector.” In Poland “the proposed tax exclusively aims at increasing the amount of funds that are being contributed by the financial sector for financing public expenditure.”
The ECB urges the Polish government to carry out a careful analysis of potential negative impact to ensure it does not “pose risks to financial stability and the provision of credit, which could eventually adversely affect growth in the real economy.”
“Such an effect might result in banks offering less favourable terms to their customers when providing loans and other services, and may also induce certain banks to cut back on their activities, leading to a reduction in the availability of credit and creating uncertainty for these banks,“ the ECB warns.
The ECB also frets the tax may push financial institutions towards “changing their risk profile by restructuring their portfolios in favour of riskier products, by making use of off-balance sheet activities and/or by transferring their assets abroad.”
However, the warning will likely have little effect in Warsaw. The PiS government has responded to EU criticism of its recent media law with fury. Meanwhile, it has shown more than once that it is happy to use its majorities in both house of parliament to turn bills into law in mere days.
The ruling party has made it clear it would like the bank tax to take effect from February 1. The haste owes to PiS’ pledge to roll out its key social spending promise – a child benefit payment of around €115 per month for every second and subsequent child – as early in 2016 as possible.
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