Banking levy increased in Budget 2024
Ireland will revise how it calculates its levy on banks after announcing plans to raise €200m from the measure next year, up from €87m in 2023, Finance Minister Michael McGrath said today.
The levy previously raised a flat €150m a year after its introduction following the banking crisis a decade ago.
But that fell last year after two of the country’s then five retail banks announced they were leaving the market.
The share paid by the remaining three banks is based on the amount of deposit interest retention tax (DIRT) each pay.
Michael McGrath told a news conference that the basis of the levy will change to being related to the value of a lender’s deposits.
Further details will be included in legislation next week that will underpin the Budget 2024 announcement.
Analysts at Davy Stockbrokers had said that an increase to €200m based on the existing DIRT would have had an outsized impact on Permanent TSB, relative to its larger rivals AIB and Bank of Ireland.
Minister McGrath said he had considered widening the levy to include non-bank lenders.
But he added that he decided against doing so because in the main such lenders do not hold deposits, meaning it would “in effect be tantamount to a levy on mortgages”.
“It is important that the banking sector continues to make a contribution to the Irish economy following the support they received during the financial crisis,” Mr McGrath had earlier told the Dáil in his budget speech.
“I will review the levy again next year to ensure it remains appropriately calibrated,” he added.
Davy estimated that the incremental impact from an increase based on retail or household deposits would be in the range of 2-3% of 2024 profit before tax across all three banks, based on its current forecasts.
The bank levy was initially introduced as a revenue raising measure in 2014 and since then has been extended several times by successive Governments.
Diarmaid Sheridan, Research Analyst with Davy, said the bank levy was increased to a slightly higher than expected level.
“Though the devil will be in detail next week with the Finance Bill, to the extent the revised levy is seen as fairer, in particular on PTSB, it will be accepted by the market as a reasonable outcome,” he stated.
Banking and Payments Federation Ireland said the banking landscape has changed significantly since the levy was introduced with the number of retail banks in Ireland decreasing from 12 to five – two of which (Ulster Bank and KBC Bank Ireland) are also exiting the Irish market.
“While State ownership has been a feature of the Irish retail banking sector for the past decade, the Government’s strategy is to return banks to private ownership and the State’s present day recovery value from the three banks is over 94% of its original investment,” BPFI said.
“The arbitrary nature of the increase in the levy introduced in today’s budget risks Ireland’s reputation as a stable, consistent and transparent tax regime,” it added.