Treasury officials have admitted their bank levy costings assume some of the $6.2bn bank levy will passed through to customers.
In a Senate committee reviewing the bill for the 0.06% bank levy on the Commonwealth, Westpac, ANZ, National and Macquarie banks, Treasury officials said ultimately it would be a commercial decision for the banks as to how the levy was raised.
The deputy secretary of markets group in Treasury, John Lonsdale, said it was up to banks as to whether they passed the levy cost through to shareholders, to customers or whether they improved efficiencies or cuts costs in the business.
Lonsdale said the “costing does assume some pass through of the levy to customers” based on previous bank behaviours. But he added that the “treasurer thinks the levy should be not passed through to customers”.
When asked by the Labor senator Chris Ketter whether cabinet had ticked off on the costings, Lonsdale said they were simply “assumptions” and the commercial decisions were for the banks.
The Senate economics legislation committee is looking at the major banks levy and will report back to parliament on Monday when the bank levy bill is debated in the lower house. While Labor is supporting the levy, it has been critical of the policy process.
The Macquarie Bank CEO, Nicholas Moore, said his bank expected to pay $50m for the levy after tax.
If the five major banks’ estimates are correct, the levy would raise just over $1bn a year for four years, leaving a shortfall of nearly $2bn – close to warnings from Greens senator Peter Whish-Wilson after the budget. In contrast, the Treasury estimated about $1.5bn a year or $6.2bn over four years in the May budget.
Lonsdale defended Treasury estimates that are $500m a year higher than what the banks estimates.
He said the costings were based on data from a highly regulated industry and, notwithstanding the usual uncertainty with new taxes, he considered the costings remained sound and correct.
Both the Australian Bankers’ Association CEO, Anna Bligh, and the individual big banks called on the parliament to consider ensuring the tax was a temporary measure to be lifted once the budget comes to surplus.
The ABA represents 25 banks, including the big five banks that will pay the six basis point levy. The big five banks are opposed to the levy, while the remaining 20 banks support the major bank levy.
Bligh urged the committee to also consider a review of the levy in 18 months to ensure there were no intended consequences, given the rushed nature of the legislation.
“It would be a clear sign in the market that parliament is concerned to make sure these things are done properly,” Bligh said.
The treasurer immediately ruled out a temporary measure.
“This is a structural measure, not a temporary measure,” Scott Morrison said. “I set this out in the budget. When we return to balance, as we’re projected to do in 2021, the bills don’t stop there. That’s why the tax doesn’t stop then.”
The CEO of ME Bank, Jamie McPhee, told the committee the government should go further and force the major banks to pay the full cost of the “too big to fail” government guarantee, which could be more than three times the proposed 0.06% bank levy.
He called on the Senate to accurately calculate the government guarantee, which provides an advantage to the major banks by lowering the cost of credit.
McPhee said that, once the guarantee was costed, it could be levied in full on the major banks “over time” but should be done in a way that would not impact on Australia’s strong banking industry.
“The benefit is not accruing because of something these banks have done, it is accruing because of the implicit guarantee that has been provided by the taxpayer,” McPhee said. “I would love to have the benefit extended to ME Bank, I would be happy to pay the six basis points.
“I think we should accurately calculate what the benefit that is being accrued and all agree and stop having that philosophical debate and have a facts-based discussion and then I think over time that benefit should go back to its rightful owner – that is, the taxpayer.”
Mike Hirst, the CEO of the Bendigo and Adelaide Bank (BEN) – which is not large enough to pay the levy – welcomed the policy for “evening up the playing field”. He estimated the implicit advantage gained by the major banks at between 25 and 30 basis points.
Hirst said the RBA estimated that the guarantee was worth up to $3.8bn to the major banks, in 2013. He said in his submission that it was currently worth $5.7bn with the “additional notch of support now factored in by S&P”.
“That benefit is effectively an undue benefit that accrues to major bank shareholders in BEN’s view,” Hirst said in a submission.
The International Monetary Fund and the Reserve Bank of Australia have previously estimated the cost advantage of such implicit guarantees is worth 20 basis points.
Bligh said the value of the guarantee was “murky” and agreed that the cost of the guarantee had not been properly estimated but that it was diminishing.
Whish-Wilson asked Bligh if further policy work was done, and the value was shown to be 20 basis points, whether the banks would agree to a potential 20-point levy. Bligh said it was a hypothetical question.
Morrison argued the levy was in return for the implicit government guarantee to bail out major banks deemed “too big to fail”.
“It’s a very modest measure when you look at the skill of these banks and particularly the up to 40 basis point advantage they have in the market because of the implicit guarantee that exists from the Australian taxpayer,” Morrison said. “And so the levy of six basis points is an entirely reasonable thing for the government to do and frankly is overdue.”
Moore – recently revealed as the highest paid listed company boss, earning $18m annually – argued that Macquarie Bank was different to the large four banks, holding only 2% of Australian mortgages and 2.5% of deposits and therefore should be excluded from the bank levy.
Labor’s shadow financial services minister, Katy Gallagher, said that, after Macquarie bank estimated it would pay $50m a year for the levy, it was clear that, on total bank estimates, revenue raised would fall short by $500m a year or $2bn over four years.
“The $6.2bn that the government has been crowing about is going to fall well short,” Gallagher said.
