"In these difficult geopolitical circumstances, the Law on Temporary Solidarity Contribution, adopted by the Seimas, contributes significantly to strengthening of Lithuania's security. The funds from this contribution will be used to finance military mobility and dual-use transport infrastructure projects, as well as military infrastructure needed to ensure the reception of NATO allied forces," says Minister of Finance Gintarė Skaistė.
Lithuania was the fourth country in the European Union that took decisions due to the growing profits seen by the banks and due to the exceptional circumstances that have developed. Later, plans for additional taxation of banks were presented by the Italian government as well.
Commercial banks operating in Lithuania earned EUR 258.4 million of profits in the first quarter of this year – almost 2.6 times more than last year at the same time. If the situation does not change, it is likely that in 2023 the profits of banks in Lithuania can reach about EUR 1 billion.
The Law on Temporary Solidarity Contribution, which was approved by the Seimas with a large majority at the beginning of May, established to temporarily set a 60% temporary solidarity contribution rate for part of the net interest income, which is more than 50% above the average of four financial years. The temporary solidarity contribution will be paid for 2023 and 2024, separating the unexpected income from normal income.
Based on the preliminary calculations made during the preparation of the draft law, during the entire period of validity of the contribution from 16 May 2023 until the end of the year 2024, the solidarity contribution could total about EUR 410 million. According to the likely scenario, about EUR 130 million of the solidarity contribution will be collected in the State budget in 2023, in 2024 – about EUR 230 million, and in 2025 – about EUR 50 million.
The need for a temporary solidarity contribution has arisen due to the temporary potential for significant increases in bank profits, which have been largely driven by and in response to the economic and geopolitical factors of the past two years. The law applies only to that unexpected part of interest income of credit institutions, which is not related to business decisions.
During the coronavirus pandemic, the state provided unprecedented support to businesses and people. This not only reduced the credit risk of companies and households, also the potential of losses for banks, but also increased the level of liquidity in the financial system. This in Lithuania contributed to the fastest growth in the euro area - 52 % - of the level of deposits and by EUR 11 billion higher accumulated residents' deposits than loans.
After Russia launched an unprovoked war in Ukraine, inflation increased, the European Central Bank (ECB) significantly increased and continues to increase basic interest rates, and historically the largest excess liquidity is kept by banks in ECB accounts. The ECB pays commercial banks interest on these funds.
Due to the huge and unusual surplus of liquid assets in such a case, this income does not depend on the business decisions made by the banks and is therefore considered unexpected.
Russia's war in Ukraine additionally highlighted the needs of military mobility in Lithuania, which amount to about EUR 963 million. The temporary solidarity contribution is planned to be used to finance the expansion and renovation of airports and seaports necessary for military transport, installation of logistics and loading sites, development of national roads at Rūdninkai training area, reconstruction of the highway at the Polish border, renovation of bridges and viaducts, construction of ramps and the implementation of other necessary projects. The difference between the needs and temporary solidarity contributions is to be financed by the EU and national budget funds.
