KBC Against Small Savers?
The CEO of the Belgian bank, KBC, has expressed criticism regarding the tax advantage granted to one-year government bonds. However, a more pressing concern lies in understanding why KBC, along with the majority of Belgian banks, offers less than 1% interest on savings for small one-year savers while being able to place these funds risk-free with the European Central Bank (ECB) at a rate of 3.75%.
The ECB itself reported in February that the average interest on savings accounts in Belgium stands at a mere 0.35%. This situation prompts questions from small investors. These concerns have led Finance Minister Van Peteghem to propose a solution: a one-year government bond with a net remuneration exceeding 2%, once fees and taxes are accounted for.
Currently, one-year savings accounts yield approximately 1% or even less (before taxes), and when coupled with annual inflation rates between 4% and 5%, the real value of savings (purchasing power) for Belgian savers diminishes by around 3% to 4%, even before taxes. To put this into perspective, a calculation by the Belgian financial daily L'Echo estimated that the purchasing power of small Belgian savers eroded by €22 billion in 2021 alone, based on a 6.6% inflation rate. Unfortunately, this situation has worsened in 2022, with inflation reaching 10.2% (according to Eurostat), while nominal interest rates remain nearly negligible before taxes.
Furthermore, the banking industry's argument against government bonds with a 15% tax on interest appears to disregard the fact that regulated bank savings accounts are entirely exempt up to €980 in annual interest for an individual and taxed at 15% thereafter. The taxation on savings income is generally seen as overly burdensome, as it is based on nominal savings income rather than adjusted for inflation, which results in significant distortion.
BETTER FINANCE has long been advocating for an end to the ferocious financial repression imposed by both public authorities and banks on European savers. We advocate for:
- Ensuring nominal interest rates surpass inflation.
- Altering the taxation of nominal incomes to account for inflation, thereby reflecting true purchasing power.
- Requiring transparency from both banks and governments in reporting the performance of savings products in real terms (post-inflation), rather than solely in nominal terms. This would counteract the cognitive bias known as the "monetary illusion" that disadvantages savers.
These measures are pivotal not only for the financial well-being of citizens but also for the preservation of democratic values. The erosion of the middle class's economic standing could inadvertently foster extremism, underscoring the urgency of addressing these issues.
For more information read the L'Echo article [in French] here.