Filenews 1 July 2024
The parliamentary Committee on Finance is expected to discuss today the proposal for a law submitted by AKEL's Secretary General, Stefanos Stefanou, for the creation of a Solidarity and Support Fund for Borrowers, which will be financed, among other things, by taxing banks' windfall profits.
As stated in the explanatory memorandum to the proposal, the purpose of the proposal is to establish a fund to deal with the exceptional circumstances created by the rise in inflation over the last three years and the subsequent successive decisions of the European Central Bank to raise interest rates.
The establishment of the fund and its financing with resources derived, inter alia, from the imposition of an extraordinary levy on windfall profits of credit institutions, "will lead to a fairer distribution of the economic impacts within society created by the rise in inflation and the increase in interest rates from 2022 onwards", is mentioned in the explanatory memorandum.
According to the draft law, the skyrocketing inflation over the last three years and the continuous increases in interest rates, based on decisions by the European Central Bank to deal with it, have created adverse economic conditions for the citizens of the Republic.
In addition, due to the adverse economic conditions prevailing in the recent period, households and businesses have borne excessive financial burdens, which have had a catalytic effect on their ability to repay loans, as a result of the significant reduction in their disposable income.
"The principle of social justice is an essential imperative and a constituent element of every modern society and every democratic state," it added, and that in order to support affected population groups, in particular borrowers, and to distribute more fairly the economic impact resulting from the cumulative effect of rising inflation from 2022 onwards, The assistance of the state is required, by taking measures to ensure social justice.
It is also noted that in order to address the unbearable social consequences of the rise in inflation, it is necessary to take measures, such as the imposition of an extraordinary tax on the windfall profits of credit institutions, which, as a result of the continuous increase in interest rates, show increased profitability and revenue growth by 97%, compared to 2022, without affecting the stability of the financial system.
According to the draft law, the imposition of such measures serves the public interest, through a fairer distribution of the financial burden within society, in a way that does not disturb in any way the fiscal balance and does not affect the stability of the financial system. It is also stated that support measures and fairer burden-sharing require the taxation of windfall profits of banking institutions, i.e. the imposition of an extraordinary fee and the creation of a special fund to finance measures to support groups of the population.
As mentioned, the purpose of the Fund, provided that the Fund's reserve is maintained in any case in surplus, is to subsidize support projects and training and enlightenment actions to combat financial illiteracy and develop financial literacy for citizens.
In particular, it is provided that the Council of Ministers, upon proposal by the Minister, may approve the financing from the Fund's resources of Support Schemes in the form of financial incentives or sponsorships, which, indicatively, may concern the coverage of borrowing costs for new and existing housing loans for the acquisition of a primary residence or the support of vulnerable borrowers, based on sponsorship schemes.
Where do the Fund's resources come from?
The resources of the Fund to cover its operating expenses and the financing of the planned projects and actions are proposed to derive from the collection of the imposition of the extraordinary solidarity fee of credit institutions, the collection of a special tax to be imposed, with state sponsorship, donations, interest on deposits or investments of the Fund's revenues and revenues arising from income tax on PPE, part of which will be deposited in the Fund, provided that a Decision of the Council of Ministers has been previously taken.
As noted, the extraordinary solidarity fee of credit institutions is imposed for tax years 2024 and 2025 on the recorded increase in net interest income from PPE, compared to the revenues of tax year 2022 and amounts to 5% of these revenues.
It is noted that within the proposed law, there is provision so that, in case it is found that any PPE has passed on the financial impact of the imposition of the foreseen extraordinary solidarity fee of credit institutions to its customers, a fine amounting to 150% of the rollover amount is imposed.
