Spain will impose extraordinary taxes on banks and electricity companies to alleviate inflation

Spain will introduce temporary extraordinary taxes on electricity companies and financial institutions, which should generate 7 billion euros ($7.02 billion) of revenue in 2023 and 2024 and help Spaniards cope with rising inflation, the government said on Monday. Tuesday, prompting a sell-off in some bank shares.

Sabadell SABE.MC fell 12% after the announcement, while Bankinter BKT.MC and Caixabank CABK.MC lost around 10%, before paring losses. Read full story

The President of the Government, Pedro Sánchez, said in his speech on the state of the nation that the annual income in 2023 and 2024 from a tax on the extraordinary profits of electricity companies made this year and the next should reach 2,000 million euros .

He added that the surprise tax on financial entities would contribute 1,500 million euros a year.

Sánchez said that the government would impose the tax on “the large financial entities, which are already beginning to benefit from the rise in interest rates.”

But analysts said banks are already under pressure from recession fears and the possibility that any rate hike may not be as significant as expected.

“The falls in Spanish banking have been immediate, because this measure was not expected and it has come as a jug of cold water,” said Nuria Álvarez, an analyst at Renta 4.

The rate will put further pressure on banks’ ability to generate profits and will also likely increase their provisions, he said, adding that banks with mostly domestic operations were more affected than those with more diversified businesses, such as BBVA BBVA.MC or BBVA.MC. Santander SAN.MC, which fell by around 3.7%.

Shares of utilities Iberdrola IBE.MC and Naturgy NTGY.MC fell between 0.25% and 0.74%. The Government had already said that it was going to tax the electricity companies.

Sánchez said that inflation, largely caused by the Russian invasion of Ukraine, is the biggest challenge for Spain and compared it to “a serious illness in our economy, it impoverishes everyone, especially the most vulnerable groups.”

Sánchez also announced complementary scholarships of 100 euros per month for students over 16 who are already on scholarships, as well as free tickets for several trips on commuter and medium-distance trains between September and the end of December.

(1 US dollar = 0.9971 euros)

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