McGrath was determined to increase bank levy based on 'very significant profits' of lenders

Finance Minister Michael McGrath said he wanted to aim for a tax take that was 'considerably higher' than the €150m collected from the banks

Finance Minister Michael McGrath: Wanted to raise €175m from AIB Group, Bank of Ireland, and PTSB.

Finance Minister Michael McGrath was determined to increase the longstanding bank levy as he said there was every indication the banks were going to enjoy “very significant profits”.

In pre-budget discussions, Mr McGrath said he wanted to aim for a tax take that was “considerably higher” than the €150m collected from the banks, as they were doing very well and much of their profit was “sheltered from tax” due to the massive losses they incurred during the financial crisis.

During the deliberations, the finance minister was also warned by officials that any extension of the levy beyond the main banks was likely to face legal challenges. 

In a series of submissions, officials said there were questions over why the levy should apply to financial institutions that had not been bailed out during the banking collapse over a decade ago. 

The submission said the levy had been introduced in 2014, repeatedly extended, and had begun to move away from “its original timeframe and effect”.

It said a number of other institutions were becoming liable for the charge due to how it was calculated based on calculations of the Deposit Interest Retention Tax (Dirt).

“Given that such institutions have not benefitted from tax-payer-funded assistance during the financial crisis, and indeed may not even have been present in this country at that time, it is felt that they may have grounds on which to challenge their being required to pay the levy," according to the submission. 

“Entities might also challenge the rationale for the levy if other providers of similar services are not in scope,” it said. 

Department of Finance officials also flagged a concern over how the existing levy was calculated, which they said could potentially as a “disincentive” for banks to offer better deposit rates for savers. 

Officials from the banking division of the Department of Finance also flagged the risk of how a very significant hike in the bank levy would simply be passed onto customers through lower deposit rates and higher loan rates. The banking division also raised concerns an increased levy could create a new “barrier to entry” for banks entering the Republic. 

In discussions over other possible approaches to a bank levy, officials warned in particular about one option they said could lead to international banks moving their operations out of Ireland, if it “impacts their profitability”.

In the final submission, Mr McGrath said he wanted to go ahead with a levy on AIB Group, Bank of Ireland, and PTSB, with the aim of bringing in €175m.