The Slovenian government is planning to impose a tax on bank assets as a temporary measure to help finance the reconstruction of the country after the devastating early-August floods.

"All across Europe, new taxes are being introduced and Slovenia is headed in that direction as well," Prime Minister Robert Golob said in announcing the tax in a late night news show on TV Slovenija on 4 September.

The tax would be levied on 0.2% of the banks' total assets, and would most likely be introduced in the bill on reconstruction and development, the prime minister said. The next day the Finance Ministry explained that the tax would be a temporary measure, in place for five years.

According to Golob, the government expects to collect €100 million annually or €500 million in five years through the new tax.

"We all know that the banks have in a way been the winners, not of the floods, but of the past few years, also in terms of extreme profits," Golob told the public broadcaster.

"At the moment, we see a 0.2% tax on banks' total assets as something that would not undermine the financial sector and also as a fair contribution of the sector to the reconstruction and development of the flood-hit areas," he then told the late night news show of commercial broadcaster POP TV.

Proposal yet to be hashed out

"The decision was not made overnight, but in intense dialogue with the banks and a series of analyses compiled by the ministry, and takes into account data on banking operations and data made available by Bank of Slovenia," Finance Minister Klemen Boštjančič said on 5 September.

The banks are increasing their profitability mainly due to the rising interest rates on loans against still low interest they pay on deposits, which is coupled with continued low net impairments and provisions, he said.

The European Central Bank (ECB) has announced a new increase in its interest rate for September, which will have an additional positive effect on the banks' profitability in the short term, the minister explained the rationale behind the proposal.

The Finance Ministry said they had taken into account the ECB's position and the Spanish model of bank tax, explaining that the move required preliminary impact analysis for the stability of the financial system.

According to the ECB's opinion as regards Spain, the tax proceeds must not be used to cover a budget deficit but have to be purposefully used.

"Therefore we propose that the additional bank tax be a funding source for the Reconstruction Fund, which will provide subsidies and loans to finance flood damage repairs," the ministry said.

Boštjančič said the details were yet to be hashed out with the banks in the coming weeks. But he said it was clear now that the proposal would take into consideration different positions of individual banks and the effect on their future operations.

"If the banks are doing exceptionally well this year, they may not necessarily do so in the future," he said, adding that the final version of the bill would include several safeguards.

He said banks' voluntary donations in the Reconstruction Fund would be deducted from the tax on total assets, noting that the NLB bank had announced a voluntary contribution equalling 0.1% of its total assets.

"I hope other banks will follow suit, and with such concrete amounts other business subjects as well, mainly those who are generating high profits owning to specific reasons at these times," the minister said.

The ministry said it had consulted the Slovenian central bank on the measure and that the proposal was "acceptable in terms of impact for the banking sector and wider financial stability".

Banks in Slovenia saw their combined profit after tax rising by 145% year-on-year to €467 million in the first half of 2023.

Their total assets amounted to €51.3 billion as of the end of June, an increase of 6.7% on the same month a year earlier. Additional temporary tax would thus fetch €102.6 million.

The Slovenian Bank Association would not comment on the planned tax as yet, saying they could not comment on the prime minister's announcement "until more details are available".

All available sources to be tapped

Golob said that all available sources would have to be "scraped clean" to ensure enough funds for reconstruction, adding that state-owned companies would contribute through a change in dividend policy.

The government has estimated that the floods caused €4.7 billion in direct damage with Golob later announcing that €6.7 billion would be invested in the planned reconstruction, including to improve resilience against potential new floods.

The €2 billion gap between those two figures would be covered by loans, Golob said, adding that one of the ways to do it would be long-term treasury bonds, if needed.