Parties clash over bank tax and mortgage costs

Sweden’s Moderates and Social Democrats are giving sharply different assessments of how a proposed bank tax could affect mortgage borrowers, according to SVT.

Social Democrats, the Left Party and the Green Party want to introduce additional taxes on banks to raise state revenue and encourage lenders to reduce the margins they earn on deposits and loans.

But Mikael Damberg of the Social Democrats has repeatedly declined to promise SVT that the tax would not lead to higher mortgage rates. Instead, he points to the banks’ large profits and the need for stronger competition.

The Moderates have dubbed the proposal a “mortgage tax” and estimate that it could increase interest costs by 7,000 kronor a year for a household with a mortgage of 3 million kronor.

Finance Minister Elisabeth Svantesson, of the Moderates, confirmed to SVT that the estimate assumes banks would pass the entire cost of the tax on to their customers.

However, research does not provide clear support for an effect of that size. Studies of bank taxes in other countries have produced varying results. In some cases, much of the tax was passed on to customers, including through higher mortgage rates, while other studies found a small or negligible effect on loan rates.

The design of the tax and the level of competition between banks appear to influence the outcome.

John Hassler, a professor of economics at Stockholm University, said a tax on profits should not theoretically affect banks’ pricing.

“It is obvious that both sides are making major simplifications. Whether lower bank profits are good or bad is not obvious. That is what the debate should be about,” he said.

Competition measures in Latvia

Nearly half of the European Union’s member states introduced some form of additional bank taxation during years of high interest rates and large bank profits.

Latvia introduced a tax similar to the proposal debated in Sweden, alongside measures intended to make it easier and cheaper for mortgage customers to switch banks.

According to Kārlis Vilerts, head of research at the Bank of Latvia, the reforms helped push down banks’ mortgage margins. He believes the competition measures, rather than the bank tax, made the biggest difference.

“I do not think it was the excess-profit tax that pushed down mortgage rates. It was more thanks to customers having better opportunities to refinance their loans, allowing them to shop around at other banks for better offers,” he said.