As expected, the major banks are preparing to launch a media war against the Turnbull government’s proposed $6.2 billion bank levy, as outlined in Treasurer Scott Morrison’s May 9 federal budget speech.
Australian Bankers’ Association head Anna Bligh was furious. She said a campaign was being considered, claiming the government was playing “fast and loose” with the nation’s financial system.
The new tax is to be raised against the Big Four banks — the Commonwealth, ANZ, NAB and Westpac — and the Macquarie Bank, with a 0.06% levy on the money the big banks borrow to fund their lending. Deposits of less than $250,000 are excluded.
Labor and the Greens are likely to support the government’s bank levy plan. The big banks are totally on the nose.
A bank levy is hardly a radical measure. A number of mainstream commentators have pointed out that Britain introduced a bank levy in 2011 and other OECD countries also have such a tax. Moreover, Australia’s banks enjoy a government guarantee, that underpins their deposits and borrowings, and which was first implemented during the GFC.
In a comment piece in the Sydney Morning Herald Jessica Irvine wrote: “The banks continue to benefit from the knowledge that the government will step in again if things go bad.
“The more credit worthy they are perceived as being, the cheaper they can borrow. And taxpayers carry the can when it all goes wrong.
“It is a recipe for disaster, what economists call ‘moral hazard’, where there is no incentive for good behaviour because bad behaviour is rewarded too.
“It’s hard to estimate the size of the discount banks enjoy on their borrowing by virtue of the taxpayers effectively going guarantor on their loans.
“In all likelihood, it is much higher than 0.06 percentage points — which is all the levy seeks to re-coup.”
The big banks are seeking support, with Westpac chair Lindsay Maxsted warning the government it is setting a “terrible precedent” by imposing higher taxes on the banks because they have the “capacity to pay”. Which industries might be next, he asked?
Westpac chief executive Brian Hartzer threatened that the banks would eventually pass it on to the public. “The cost of any new tax is ultimately borne by shareholders, borrowers, depositors and employees,” he said.
In another comment piece, Clancy Yeates said: “Unlike most other hikes in banks’ costs, this measure [the bank levy] comes amid a concerted attack on something far more important to their profitability than a tax: their pricing power.”
He quotes CLSA analyst Brian Johnson as saying: “Post the global financial crisis, the Australian banks have seemingly enjoyed unfettered pricing power to increase variable housing rates ... But now the banks’ pricing power looks set to be tested on many fronts.”
The Big Four banks made about $30 billion in combined profits last year. Together they are the most profitable set of major banks in the advanced capitalist world.
The government’s proposed bank levy, at around $1.5 billion a year, is estimated to represent about 5% of their profits. This modest tax hike is a small, but significant step forward for the people’s campaign to take on the power of the big banks.
Other measures to check the unfettered power of the banks include an immediate freeze on rises in home loan and credit card interest rates. We also need to nationalise the major banks and financial corporations, and replace their boards with workers who are elected, transparent and accountable.
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