Arion Bank chief calls planned tax increase short-sighted

Arion Bank Chief Executive Benedikt Gíslason has criticised the government’s planned increase in the bank tax, calling it a short-sighted response to temporary conditions, mbl.is reported. He said that if the increase goes ahead, it should be removed after one or two years.

The government plans to raise the tax from 0.145% to 0.254%, an increase of more than 75%. The levy is charged on financial companies’ liabilities, most of which are customer deposits, Gíslason said.

Arion Bank reported a profit of 8.7 billion Icelandic kronur in the third quarter, compared with 8.2 billion kronur in the same period last year. Gíslason estimated that the tax increase would add about 1.7 billion kronur to the bank’s costs annually. Under the government’s plan, the increase would apply retroactively to the current year, resulting in an estimated additional cost of 1.7 billion kronur for the fourth quarter.

“We are, of course, not seeking to avoid paying taxes to society,” Gíslason said in the bank’s earnings statement. But he said taxes on Icelandic financial companies already exceed those in neighbouring countries, and that various regulations specific to Iceland also add costs.

He said Arion Bank’s operations, excluding subsidiaries, generated about 15 billion kronur in tax revenue last year. While balanced budgets were an important goal, he said, policymakers also needed a long-term vision for companies’ operating environment, including financing costs and levies, to maintain prosperity in an international competitive environment.

Gíslason also welcomed an agreement earlier this month among the government, municipalities and many companies to work against inflation. He said the effort helped prevent a termination clause in collective agreements from being activated. He added that conditions were now in place for inflation to fall and, in turn, for policy interest rates to be lowered.

He described the bank’s third-quarter performance as good and in line with its targets. Core operations were performing well and deposits continued to grow, while loan growth had slowed amid persistently high interest rates. The group’s capital and liquidity positions remained strong, he said.