Because most banks are barely earning their cost of capital anyway.
Because taxing away banks’ profits in the good times means they don’t have capital to absorb loan losses in the bad times - bank profits are very cyclical.
And because windfall taxes are a fundamentally dodgy concept. In a stable market-based economy, the state should act predictably - set up the rules of the game up front (e.g. the tax system) and then apply those rules faithfully. Windfall taxes means telling industries at the start of the year that their tax rate this year will be X%, but then coming in after the end of the year to say ‘actually we decided to tax you Y% instead, so now you owe us a load of extra tax on last year’s profits that we didn’t tell you about’. This means that next time around, businesses and investors won’t be able to trust that the government is telling the truth about what taxes will apply to their profits for the next year - uncertainty that can be harmful for investment and economic activity.
Ohhhh okay. yeah that’s kind of shitty I can see how this could make banks hesitate to lend if they dont even know how much cash theyre gonna have on hand
Sooo question. What does this mean exactly? Ive seen a few news articles saying its bad but I am not sure I quite understand why 😅
Because most banks are barely earning their cost of capital anyway.
Because taxing away banks’ profits in the good times means they don’t have capital to absorb loan losses in the bad times - bank profits are very cyclical.
And because windfall taxes are a fundamentally dodgy concept. In a stable market-based economy, the state should act predictably - set up the rules of the game up front (e.g. the tax system) and then apply those rules faithfully. Windfall taxes means telling industries at the start of the year that their tax rate this year will be X%, but then coming in after the end of the year to say ‘actually we decided to tax you Y% instead, so now you owe us a load of extra tax on last year’s profits that we didn’t tell you about’. This means that next time around, businesses and investors won’t be able to trust that the government is telling the truth about what taxes will apply to their profits for the next year - uncertainty that can be harmful for investment and economic activity.
Ohhhh okay. yeah that’s kind of shitty I can see how this could make banks hesitate to lend if they dont even know how much cash theyre gonna have on hand