(Bloomberg) -- The Slovak government wants to impose a special levy on bank profits among the measures proposed to cut the European Union’s widest budget deficit and help finance increased welfare spending. 

Lenders in Slovakia, which is dominated by units of foreign banks including Erste Group Bank AG, Raiffeisen Bank International AG and Intesa Sanpaolo SpA, will face an additional 30% tax that should bring about €340 million in extra budget revenue next year, according to Finance Minister Ladislav Kamenicky. 

Higher social spending, such as end-year bonus payments to pensioners, was among key campaign promises that helped Prime Minister Robert Fico win September election. The leftist leader, now serving his fourth term in office, is returning to a strategy of extracting more state revenue from profitable businesses that he deployed in his previous stay in power about a decade ago.

The draft plan, endorsed by the cabinet in the capital Bratislava on Monday, is now headed to parliament for a final approval. It includes 18 measures worth a total of $2 billion, which aim to reduce the fiscal shortfall by as much as 0.5 percentage point next year, from an estimated 6.5% of economic output in 2023. 

“Last year was a record in terms of profits, and the banks will even exceed it this year,” Kamenicky told reporters after a cabinet meeting. “We have to take from these profits, and distribute them through the state budget to people who need it.”

The extra 30% tax will be effective from 2024 and it will automatically decrease by five percentage points every following year to reach 15% rate in 2027. Together with the regular corporate tax, banks will be subject to a 45% tax rate next year and pay $580 million to the state in total, according to the finance minister.

The banks said the plan will limit their room for lending to businesses and people. The industry has benefited from rising interest rates in the euro area. 

“A significant increase in tax burden means that banks will lose the ability to create sufficient own capital and cover the demand for loans in the full extent,” the Slovak Banking Association said in a statement. 

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