Minister for Finance Michael McGrath has given his strongest indication yet that he plans to raise and expand the scope of the State’s bank levy in the upcoming budget to penalise lenders for not passing on increased interest rates to savers.
Retail banks here have been heavily criticised for failing to increase their deposit rates in line with European Central Bank (ECB) rate hikes while reporting big annual profits, part of which stem from the money they make from deposits held with the ECB.
To date, Irish banks have passed on just 7 per cent of the recent ECB rate rises, a figure that has been described as “derisory”, and one that makes Irish savers the worst-served in the euro area by their banks. In contrast, British banks have passed on 43 per cent of the Bank of England’s rate increases.
“Undoubtedly they [the banks] are enjoying very large profits at this point in time and that is being driven in no small part by monetary policy, by the changes in interest rates that we’re seeing at the ECB,” Mr McGrath said.
Gladiator II review: Don’t blame Paul Mescal but there’s no good reason for this jumbled sequel to exist
What will €350,000 buy in Greece, Italy, France, Portugal and Galway?
Spice Village takeaway review: Indian food in south Dublin that will keep you coming back
What time is the Katie Taylor v Amanda Serrano fight? Irish start time, Netflix details and all you need to know
“While we haven’t seen the full pass-through to mortgage holders of the increase in interest rates, we’ve seen there’s been far less of a pass-though to savers and depositors,” he said.
[ If Irish banks raise interest rates for savers, mortgage costs will increase tooOpens in new window ]
Mr McGrath confirmed that he planned to extend the bank levy, which is due to lapse this year, into 2024. “But more than that, I am examining the nature of the levy, examing the scope, the reach of the levy, who is paying it, what is being paid and what is the overall yield and what is a reasonable amount the financial sector should be paying to the exchequer,” he said.
“That is why we’re not proposing to introduce a new type of windfall tax because we already have a levy. We can change the nature of the levy. We can change the rate of the levy if we so chose, ” he said. The bank levy, introduced after the financial crash, used to net the exchequer €150 million a year but since the departure of Ulster and KBC bank, this has fallen to less than €90 million.
Mr McGrath was speaking as his department published its annual taxation report, which warned that a “more sustained downturn” in the global IT sector would have “severe implications” for the public finances here.
The report noted that the State’s tax base had become increasingly concentrated around “a few key sectors” and that up to €11 billion of last year’s corporation tax revenue should be treated as “potentially transitory”.
[ Where can you expect interest rates to go over the longer term?Opens in new window ]
[ McGrath puts pressure on banks to raise interest rates for savingsOpens in new window ]
“We can see how susceptible we are to changes in profitability, to potential further changes in intellectual property (IP). At the press of a button on a keyboard a huge amount of IP came to Ireland after 2015 but similarly some of it could leave in the future,” the Minister said. “There is a vulnerability there,” he said.
The report came as new figures from the Central Statistics Office show the number of people at work in the State hit another record high of 2.64 million in the second quarter of 2023, despite the deteriorating economic outlook. This was an increase of 88,400 or 3.5 per cent on the same period last year.
One of the main contributory factors was increased female employment and increased female participation in the labour force, a trend that has been linked to remote working. The figures also show that, despite a sequence of high-profile tech job losses here, employment in the sector rose on an annual basis by 8,500 to 173,400.
Mr McGrath said the figures highlighted the “underlying resilience” of the tech sector here.
