Windfall Tax Debacle: Czech Banks and the Illusion of Higher Interest

The Czech government’s defense of the windfall tax debacle, claiming that banks offered people higher interests, does not hold water when scrutinized. The government posits that the billions that were to reach the state from the six largest banks as a tax on extraordinary profits, which, in the end, did not materialize, were allegedly left to the people in the form of high savings account rates. However, these rates hardly moved last year, let alone considering that the decline in real incomes significantly weakened people’s ability to save. Meanwhile, bank profits remained high.

“Due to stagnation of rates, we did not see changes in interest on savings accounts all last year except for a few minor exceptions,” Marek Pokorný, an analyst at the Port investment platform, confirmed. He reminded that achieving interest over six percent at six banks was possible, only two without a limit. Even the best savings accounts only mitigated the drop in the value of savings, as the average inflation last year was approximately 11 percent.

Interest on bank deposit products gradually increased in the fall of 2021 as the Czech National Bank raised the base rate. This rate rose to seven percent, approved by the CNB the year before last in June. Since the fall of 2022, the banks have only made cosmetic adjustments to their rate lists.

The silence of the banks when approached by the Novinky and Právo editorial offices to comment on profits, levies, and savings account rates is also telling. The Czech Banking Association briefly expressed, “We have been saying from the beginning that expectations regarding bank profits are completely unrealistic,” said the spokesperson for the extraordinary tax, Radek Šalša.

Finally, high bank profits persisted last year. The six largest banks, which the windfall tax affects, earned a total of CZK 57.1 billion for the previous three quarters. During the same period in 2022, it was CZK 58.4 billion. As the debate surrounding the extraordinary tax continues, the realities of the situation become increasingly apparent, and the government’s arguments seem to falter under scrutiny.