ROME (Reuters) - The government's decision to introduce an extraordinary tax on banks' extra-profits was prompted by a desire to strengthen its political base and appeal to the less affluent, but clumsy management has created harm rather than benefit, shaking investor confidence.

The collapse of the markets prompted a prompt clarification regarding the one-time 40 percent levy imposed on banks' interest margin increase, which, as the government later clarified, is limited to 0.1 percent of bank assets, in line with European Union recommendations.

The first surprise move, announced at a press conference late Monday evening, undermined investor confidence in Italy and showed the gaps in the government's communication strategy.

"We consider the tax debacle 'credit negative' for Italian banks to reflect the growing political risks in Italy," said Suvi Platerink Kosonen, senior sector strategist, financials, at Ing.

The levy targets the increase in net interest income driven by rising rates against a cost of funding that banks have managed to keep low. The proceeds will be used to ease pressure on mortgage holders, as well as those with low incomes or modest pensions.

Deputy Prime Minister Matteo Salvini announced the plan during a press conference at which the absence of Economy Minister Giancarlo Giorgetti, as well as Prime Minister Giorgia Meloni, stood out.

"Giorgetti represents the pro-market soul of the coalition, while Salvini represents populism. This (press conference) was a clear demonstration of ambiguity," said Giovanni Orsina, a professor at Luiss in Rome.

WHERE TO PUT THE CAP

The Treasury issued a statement nearly 24 hours after the announcement, emphasizing the existence of a ceiling and helping to reassure investors in the short term.

"The cap has made a big difference," said Stefano Gatti, professor of intermediaries at Bocconi University, considering that the impact on banks' core capital has been reduced to one-third of the initial estimate.

However, the move increases investors' perception of risk to Italian lenders, whose cost of capital is already affected by Rome's high debt and the economy's vulnerability.

"Capitalism that weakens bank credit will never lead to prosperity," explained UniCredit investor Cole Smead.

Both Fratelli d'Italia and Lega built part of their reputations on an anti-establishment platform that portrayed banks as money-hungry institutions.

The Meloni government had entertained the idea of imposing a tax on bank extra-profits, but seemed to have shelved it. League deputy leader Giorgetti in recent times had limited himself to urging banks to narrow the gap between loan and deposit rates.

"We are taxing bad behavior on the part of banks. We are only taxing the extra profits from the gap between interest income and interest expense," Giovanbattista Fazzolari, undersecretary to the government, told Reuters.

The new tax hits the increase in net interest income for 2022 or 2023 above certain thresholds.

ROBIN HOOD HIT

The government has turned its attention to banks after recently being put in the crosshairs by the opposition for scaling back an anti-poverty aid program.

"They have hit the banks, which are the symbol of power, to show that they are close to the weakest families, as if they feel an overwhelming desire to present themselves as Robin Hood," commented Francesco Galietti, founder of the consulting firm Policy Sonar.

Although still high, the government's approval rate is at its lowest since taking office in October, with about 49 percent of Italians expressing a positive opinion of the administration at the end of July, according to a Corriere della Sera poll.

While Spain and Hungary also hit their banks with one-time taxes, the impact could be greater in Italy, given the centrality of banks to the country's economy.

"Another arbitrary move by the government hitting banks," said Jerry del Missier, founder of Copper Street Capital.

"It is doubly damaging to Italian banks, which continue to trade at a steep discount to the market, despite their robust capitalization and improved profitability."

(Translated by Chiara Scarciglia, editing Sabina Suzzi)