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The recent decision of the Constitutional Court (TC) deeming the Banking Solidarity Grant (ASSB) unconstitutional raises complex and controversial issues.
This tax was established in 2020 to finance social security during the pandemic, generating around €180 million for the public treasury over five years. However, the TC’s recent ruling puts the continuity of this contribution at risk due to an alleged violation of the principles of equality and ability to pay.
Constitutional Court ruling
The Constitutional Court held that the ASSB violated the principle prohibiting the retroactive application of taxation because it applied retroactively to bank balances from the first half of 2020.
In addition, the two rulings declared the tax unconstitutional and in violation of the principles of equality and ability to pay, which are fundamental to the tax system as they aim to guarantee fair and equitable treatment to all taxpayers.
Support for banks during the crisis
The decision to declare the ASSB unconstitutional came against a backdrop of huge profits being shown by the bank. This situation is in stark contrast to the period of the economic crisis when taxpayers were asked to “bail out” several banking institutions.
Between 2008 and 2021, the Portuguese government spent around 30 billion euros to support the financial sector, resulting in a negative treasury balance of 22 billion euros.
This support was crucial to avoid the collapse of the financial system, but it left a bitter taste for citizens who saw their taxes used to rescue banks that subsequently returned to profitability, especially from commissions that banks charged their customers.
Decide
Explaining these decisions to citizens is not an easy task.
The anger is understandable, especially when one considers that banks that were bailed out with public funds now find themselves without having to make additional contributions to Social Security.
However, it is important to emphasize that the Tax Board’s decision is based on constitutional principles aimed at protecting all taxpayers, including banks, from unfair and arbitrary tax measures.
The principles of equality and ability to pay are the pillars of our tax system.
Tax equality ensures that all taxpayers are treated equally, while ability to pay ensures that taxes are proportional to each individual’s ability to pay.
On the other hand, retroactive taxation is a practice that violates the legal certainty and predictability that taxpayers must have regarding their tax obligations.
The future of social security financing
With the possible collapse of the ASSB, the question of how to finance social security in a sustainable way has resurfaced. The creation of a specific tax for sectors that benefit from tax exemptions and benefits, such as the banking industry, could be a solution, as long as constitutional principles are respected.
Alternatively, the government could consider other ways to raise revenue, such as reviewing tax exemptions or implementing new tax policies that are fair and equitable to all taxpayers. The Constitutional Court’s ruling highlights the importance of respecting constitutional principles when formulating tax policies.
While this decision may be difficult to accept, especially in the context of high bank profits and the memory of recent taxpayer-funded bank bailouts, it highlights the need for a fair and equitable tax system. As John F. Kennedy said, “If a free society cannot help the many who are poor, it cannot save the few who are rich.”
Ultimately, the search for a fair and equitable tax system must be an ongoing effort that respects constitutional principles and meets the needs of society.
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