Irish banks hit with levy, tax change eases blow
DUBLIN Oct 15 (Reuters) - Ireland hit its already battered banks with a three-year levy on Tuesday, ordering them to pay a total of 150 million euros ($202 million) a year for their role in the economic crisis but offered other measures to soften the blow.
Irish banks faced huge losses after property prices began to tumble in 2008, pushing all but Bank of Ireland into full state ownership, forcing others to close and eventually leading the government into an 85 billion euro EU/IMF bailout.
Presenting the 2014 budget, Finance Minister Michael Noonan said the levy would be based on the tax paid on deposit interest in 2011. His spokesman said it would be levied on all retail banks, including the Irish units of lenders like KBC Bank and RBS.
The financial sector remains the biggest risk around Ireland's completion of the bailout later this year because of uncertainties over lenders' levels of bad debts.
"The contribution from each institution reflects the significant role played by the banking sector in the crisis," Noonan told parliament as he delivered the country's seventh austerity budget in six years.
Noonan reversed a 2009 law relating to loans moved to the country's "bad bank" that limited the ability of bailed-out lenders to use past losses to cut future tax bills, a move he said would level the tax position of domestic banks.
In a report last month Merrion Stockbrokers estimated that by removing the restriction on the use of deferred tax assets for losses on loans transferred to the National Asset Management Agency (NAMA) from Bank of Ireland and Allied Irish Banks would generate about 250 million euros by 2019.
With the country's two main banks sharing around 60 percent of the Irish deposit market and saving around 250 million euros by 2019, the net impact of the levy would be quite small, although it will hit them harder in the short term, said Emmet Gaffney, analyst at Investec Ireland.
Losses at the banks, whose rescue cost the equivalent of 40 percent of annual economic output, rose further because of fees they had to pay for a state guarantee put in place in 2008 and removed earlier this year.
Analysts said the levy could slow the government's plans of selling its stakes in the banks and returning the sector to the kind of sustainable profitability that would make more credit available to the economy.
"There is an argument to be made that if and when the government looks to sell its stakes in the banks, the value would be higher were such a levy not hanging over them," said Investec's Gaffney.
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