The excess profit tax that politicians propose to apply to banks operating in Latvia should be called a "punitive tax". It will not stimulate lending, but will have the opposite effect – in the conditions of unclear tax policy, banks will become even more cautious. This was stated by the head of the Financial Industry Association (FNA) Janis Brazovskis. "It is assumed that the new tax will be applied to the "excess profits" of banks, or profits that politicians consider too high. What is excess profit is a rhetorical question, which does not actually require an answer, and is of little interest to anyone, since it has been said in the public space that the new tax on banks could collect at least 100 million euros. A round sum, understandable to everyone without unnecessary explanations. What exactly will banks be punished for? Why banks, which are far from the only profitable companies? What do those who will be "punished" by the new tax say? These and other uncomfortable questions are not raised. There is only the absurd idea that the new tax will promote the growth of lending. With the same success, one could argue that raising business taxes will instantly make everyone happier," says Brazovskis. According to him, in recent weeks, many politicians have noted that next year's state budget will not have funds to finance additional needs. The fiscal space (money for additional expenses) is negative, taking into account the forecasts for economic growth and tax revenues, as well as national needs. "In other words, there is no money! The new tax on banks is the main, in fact, the only salvation," says the head of the Association. "Statements about the additional tax burden are not based on considerations of a serious economic downturn in the country and the need to take urgent measures to ensure state budget revenues, but in response to objective indicators of the profits of financial sector players, which are fully consistent with the economic cycle and the policy of the European Central Bank, which is not a long-term situation and is already starting to weaken." The financial sector is unanimous in its opinion and is categorically against the introduction of a new tax, considering it a disproportionate decision. According to credit institutions, this will in no way contribute to the well-being of the population of Latvia and will not stimulate lending. Quite the opposite – the uncertainty of tax policy and additional payments for industry players will lead to the fact that banks, like any other companies in a similar situation, will be cautious and will assess this as an additional risk. According to Brazovskis, when talking about the new tax, politicians avoid calling a spade a spade. "It is obvious that the argument in favor of stimulating lending in this case is fictitious, in order to somehow justify the introduction of the tax. In fact, we are talking about a solidarity fee that enterprises must pay to the state to help it cope with tasks that the government, unfortunately, cannot cope with," he says. Until now, budget planning has not been effective, and the financial sector is the fastest and easiest source of funds to fill the gaps. The financial sector has repeatedly pointed out one of the problems that can only be solved through cooperation and which has long required decisive action: the shadow economy, which really slows down lending, since those who pay and receive salaries in envelopes simply cannot qualify for loans. Our average household has less savings than the same household in Lithuania and Estonia, which also does not allow mortgage lending to grow faster. However, these and other issues related to the development of the country's economy are much more difficult and objectively take longer to solve than "taking" money from profitable businesses. If the new tax is introduced, it will be the second additional payment for credit institutions. As reported, last year the government introduced a fee for banks, which is intended to reduce the amount of monthly mortgage payments. Brazovskis points out that last year, changes were also introduced to the collection of corporate income tax for banks and non-bank players. "The argument that the new tax will be a 'temporary' solution is questionable, since a stability fee was introduced back in 2010, which was also planned to be temporary, but credit institutions continue to pay it," says the head of the Association. According to Brazovskis, there have been no high-quality consultations with the financial sector regarding the introduction of the new tax, which contradicts the government's own statement: "We will make major changes to tax policy every four years. We will increase the competitiveness of the economy, reduce income inequality, increase tax revenues and reduce the share of the shadow economy. We will simplify the payment of taxes, making it less resource- and time-consuming." "The introduction of various temporary taxes and fees without a clear goal and consistency in tax policy regarding where the funds will come from when this source of income ceases to exist does not give confidence in a targeted vision of national development either to us or to investors. It should be remembered that attracting investments is one of the main conditions for the economic development of Latvia (and other countries with which we objectively compete). If we plan to "punish" one business sector that participates and will participate in strengthening national security, then the question remains: why not tax those sectors that still support trade, import and export with aggressor countries?" asks the head of the Finance Latvia Association. As for the accusations of sluggish lending, Brazovskis points out that commercial banks operating in Latvia would like to lend more, since this is their main product. "However, the growth of lending depends mainly on the well-being and solvency of individuals, and in the business sector – on entrepreneurial activity, which, among other things, is still significantly hampered by the shadow economy. The state must encourage economic activity and responsible lending in order to avoid repeating historically familiar mistakes. Everyone must think and work together on how to make Latvia more creditworthy, especially for exporting companies that view the entire world as their market, and not on how to impose another tax on the financial sector," urges Brazovskis.
