Legal challenge to levy would be an own goal for banks
Irish Banking Federation’s decision to seek legal advice on levy was a matter of good housekeeping
“Ultimately, a decision on whether or not to pull the trigger on a legal challenge will fall to IBF president David Duffy, the chief executive of AIB, which is 99.8 per cent owned by the State.” Photograph: David Sleator
It’s hard to know whether to laugh or cry at the news that the Irish Banking Federation is weighing a legal challenge to the Government’s decision to impose a levy of €450 million over the next three years on the banks.
It seems preposterous that a sector that was bailed out by the State to the tune of €64 billion, plus interest, after the global financial crash in late 2008 should even contemplate challenging the Government’s right to claw back €150 million a year out to 2016 to pay for the day-to-day running of the country.
This was one tax that voters were happy for the Government to introduce, which is precisely why Minister for Finance Michael Noonan included it in his budget speech last October.
The Minister would also say that he did the banks – primarily AIB and Bank of Ireland – two big favours last year. In March, he ended the Eligible Liabilities Guarantee, which is gradually winding down as liabilities mature.
It had been a good earner for the State, generating fees from the banks of €1.2 billion in 2011, just more than €1 billion in 2012, and €576 million last year as the liabilities matured.
Noonan also loosened the restrictions on how deferred tax assets could be offset by banks against future profits from their Irish operations. This is beneficial to AIB and Bank of Ireland which, at the end of June, had €5 billion in deferred tax assets between them.
So the banks will be well in credit this year when it comes to fees paid to the State.
And whatever the rights and wrongs of the hated bank guarantee of September 2008, the whole retail financial sector here could have crashed spectacularly without this dramatic intervention by the government. The guarantee kept the sector on life support and, as such, was as much to the benefit of foreign-owned banks as the domestic ones.
A bit like Fianna Fáil, the IBF is something of a broad church. Its membership comprises the main retail banks, a raft of IFSC companies and other specialist finance providers.
Its decision to seek legal advice on the levy was a matter of good housekeeping by the industry body, and something that the membership would have expected. The IBF would argue that the levy is not helpful to efforts being made by the banks to return to profitability and lend into the economy, which would generate the best returns for taxpayers.
This argument doesn’t really hold water. Bank of Ireland chief executive Richie Boucher told me earlier this month that it plans to release €33 billion in “new” lending into the economy here by the end of 2017 as it pursues a sustainable return to profitability. The levy doesn’t seem to be holding him back.