Treasurer Scott Morrison has publicly implored big banks not to pass on a new $6.2bn levy to customers as two major banks signalled the need to share the pain with mortgage holders, employees and shareholders.
Banks will seek crisis talks with treasury officials on Thursday and the sector’s peak body has not ruled out launching a multi-million dollar advertising campaign to try to defeat the levy.
At the National Press Club on Wednesday Morrison confirmed the big bank levy would be permanent and would not be scrapped when the budget returned to surplus.
Morgan Stanley has warned that big banks could use the lack of competition in the banking sector to make consumers pay for a new $6.2bn levy through mortgage rate increases of up to 0.2%.
In changes announced in Tuesday’s budget the big four banks – ANZ, Westpac, NAB and Commonwealth – will each pay in the region of $300m to $400m every year under the levy. Only they and Macquarie, the fifth-largest bank, meet the threshold to pay the levy.
Labor will accept the levy but has continued to call for a royal commission and expressed concern that the tax’s cost will be passed on to consumers.
A Morgan Stanley analysis on the levy estimated it would reduce the major banks’ earnings by about 4.5%, but depended on whether they repriced their products.
It said over the past two years banks have used a lack of competition – their “oligopoly pricing power in retail banking” – to pass on regulatory costs to consumers, with lower interest rates on deposits and/or higher interest rates on mortgages.
The Morgan Stanley analysis estimated that the big four banks would need to raise home loan rates by 0.2% to offset the earnings impact of the levy.
In a statement Westpac chief executive, Brian Hartzer, warned there was no such thing as a “magic pudding” for budget repair. “The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees,” he said.
Commonwealth Bank chief executive, Ian Narev, said the bank was still working through the implications of the levy. “However, as every business owner or employee knows, every extra cost needs to be borne by customers or shareholders, or a combination of both.”
At the Press Club, David Speers asked Morrison about a letter Narev has reportedly sent to staff warning that the levy could hit customers and shareholders because “there is no such thing as a cost being absorbed”.
Morrison replied that Australians will be thinking “give me a break” because the affected banks make more than $30bn a year in profit compared with the $1.5bn a year levy.
“And with great respect to the bankers in the room, families absorb costs, small businesses absorb costs,” he said.
Morrison said a company’s value was “the way it treats its customers”. “The banks want to send a message to their customers about how much they value them? Don’t do what they may be contemplating doing. Don’t do it.”
Morrison told bankers that their customers “don’t like you very much” and invited them to “prove them wrong”.
“Don’t confirm their worst impressions. Tell them another story. Tell them you will pony up and help fix the budget.”
After the Press Club the Australian Bankers Association chief executive, Anna Bligh, said that banks were “very angry” and would determine their response to “take the issue further with government” after the treasury meeting on Thursday.
Bligh refused to rule out a multi-million dollar advertising campaign, of the type that helped the mining industry defeat the Rudd government’s super profits tax.
Earlier on Wednesday Bligh told Radio National the levy was a “big money grab to fill a budget hole for the government” and the only rationale provided for it was that banks are making a profit.
“Banks are very worried that now it’s there, any government in the future can ratchet it up and those smaller banks not subject to it could now find themselves subject to it,” she said.
Bligh said banks would have to consider meeting the tax obligation by one of or a combination of three things: lowering interest rates for deposits, reducing dividends or charging higher interest on borrowing.
She suggested it would affect banks’ ability to expand and to lend, and noted dividends went to shareholders, including superannuation funds and retirees who invest in banks.
A recovery in the banks’ share price on Wednesday suggests markets anticipated the cost of the tax would be passed on to customers rather than shareholders.
Bank share prices now up: Clearly, the levy will be passed on to customers. As was the GST, carbon price etc
— Stephen Koukoulas (@TheKouk) May 10, 2017
Bligh said Morrison had argued that company tax cuts would encourage jobs and growth so “by the treasurer’s own reckoning, raising taxes must by implication have the reverse effect”.
The former Labor premier of Queensland turned banking lobbyist welcomed the government’s decision to replace three consumer complaint bodies with a new one-stop shop, the Australian Financial Complaints Authority.
But she said banks had “a lot of question marks” over new accountability measures which gave the Australian Prudential Regulation Authority an “unprecedented” power to intervene in bank executives’ salaries when there was misconduct at their bank.
On Wednesday Bill Shorten told Sky News that Labor would not stand in the way of the bank levy and would continue to push for a royal commission, despite the extra accountability measures.
Shorten argued that “old mate Malcolm Turnbull, a former investment banker” was saying “on the one hand banks should pay more, but then he is proposing legislating that they get a [company] tax cut”.
“That doesn’t sound like a tough-on-banks attitude, does it?”
The opposition leader said the government had to protect customers and deposit holders from costs being passed on, which he said “hadn’t been given enough thought”.
On Wednesday Turnbull told Radio National that Australian banks were “the most profitable in the world” and it was fair for them to make the contribution which “they can absolutely afford”.
Turnbull said the banks “have no need to pass [the cost of the levy] on” but accepted that shareholders may be affected.
He said he needed to raise revenue to bring the budget back to balance, banks should not be a “protected species” and it was “nonsense” that the move would harm jobs and growth.
Turnbull argued that the levy was justified because big banks “benefit from an implicit government support”.
