Italy targets windfall taxes amid budget deficit concerns, echoing Nigeria’s recent bank levy

The Italian government, led by Prime Minister Giorgia Meloni, is moving to introduce new windfall taxes on companies generating extraordinary profits to address the country’s growing budget deficit.

The decision mirrors Nigeria’s windfall tax on banks, which was announced in early 2024 following a surge in profits in the financial sector throughout 2023 and 2024.

Both nations focus on sectors that have profited unexpectedly due to external market conditions, with Italy aiming to impose broader fiscal contributions on industries that have benefited from geopolitical crises, such as defense companies.

Italy’s windfall tax

In a statement on Thursday, Italy’s Finance Minister Giancarlo Giorgetti confirmed that the upcoming budget would require “sacrifices from everyone,” without specifying whether this would involve higher tax rates or new levies.

Giorgetti added that the government would avoid a repeat of last year’s attempt to impose a windfall tax on banks, which sparked market volatility and had to be scaled back. However, he emphasized that all sectors, not just banks, would be expected to contribute to stabilizing the country’s finances.

• “There will be a general call for everyone to contribute, not just banks,” Giorgetti said. “We’re all part of a country that has been called to put its accounts in order . . . and everyone must contribute.”

While last year’s windfall tax primarily targeted banks, this time the Italian government is broadening its scope to include defense companies, which have benefited from increased global conflict.

Giorgetti pointed out that industries connected to global defense production have seen exceptional growth due to the war in Ukraine and other geopolitical tensions.

• “Paradoxically, today, one could say that with all these wars, companies that produce weapons are doing particularly well,” Giorgetti remarked, hinting at a possible levy on defence firms such as Leonardo, the state-owned Italian aerospace and defence company.

Nigeria’s 2024 Windfall Tax on banks

Italy’s decision to target windfall profits echoes the actions of Nigeria, where a windfall tax on banks was introduced in early 2024.

• The Nigerian government imposed this levy after banks reported substantial profits in 2023 and 2024, driven largely by gains from the Central Bank of Nigeria’s (CBN) foreign exchange reforms.
• The naira’s revaluation provided banks with significant financial benefits, which led to the government’s decision to claim a share of these unexpected earnings.

Nigeria’s Finance Minister explained that the windfall tax was necessary to ensure that the extraordinary gains in the banking sector contributed to the nation’s fiscal health, especially as the country grappled with declining oil revenues and increased fiscal pressures.

• “The financial sector has reaped significant benefits from currency reforms, and it is only fair that in a time of national need, such profits contribute to our shared future,” the Nigerian finance minister stated during the announcement of the tax.

Global Context: Windfall Taxes on the rise

Italy’s approach reflects a broader global trend, as governments look to windfall taxes as a way to generate additional revenues from sectors that have benefited disproportionately from external shocks.

• In addition to Nigeria’s bank levy, other countries such as the United Kingdom and Spain have also introduced windfall taxes in recent years.
• In the UK, the government introduced the Energy Profits Levy in 2022, a windfall tax on energy companies profiting from high global energy prices. Initially set at 25%, the tax was later increased to 35%, with the revenues being used to support households facing soaring utility costs.
• Similarly, Spain implemented a windfall tax on both energy companies and banks, aiming to raise billions of euros to mitigate inflation and provide social support.