Don’t know your levies from your liabilities? Best get across this one because the fight between the Turnbull government and big banks has got a way to go after Labor confirmed it would back a Senate inquiry into the issue.
A $6.2bn fight
The big fight between the banks and the government is over the banking levy, set to raise $6.2bn over four years from five banks, Commonwealth, Westpac, National Australia Bank, ANZ and Macquarie.
Those banks were chosen because the levy applies from 1 July to deposit-taking institutions with licensed entity liabilities of $100bn or more, indexed to gross domestic product.
The amount is 0.06% is levied on liabilities rather than home loans and customer deposits of less than $250,000. It is a levy on products such as corporate bonds, commercial paper and certificates of deposit. Treasury has confirmed to bank bosses the levy would be tax deductible.
WTF TBTF – this levy has history
The bank levy is not a new concept – levies are common around the developed world in recognition that big banks are a special case.
“These big banks in particular benefit from the implicit support of the government. You know they are, as they say, ‘too big to fail’,” Malcolm Turnbull said after the budget. “That obviously gives them an advantage in terms of fundraising.”
That advantage is the capacity to access cheaper money because of the implicit guarantee. When you borrow, the amount you pay is based on risk. The lesser the risk, the cheaper the money.
Given the major banks are “too big to fail”, the markets know the government will step in if things go pear-shaped.
Back in 2008, the Rudd government stepped in with an explicit guarantee on $600bn to $700bn worth of deposits in financial institutions during the global financial crisis.
As David Uren and Lenore Taylor wrote in Shitstorm, the guarantee allowed Australian banks to raise more capital ($160bn in bond markets) and “they were for a time the second-largest issuers of bonds in the world”.
Bigger banks swallowed smaller banks whole. Westpac took over St George. Commonwealth took over Bankwest. According to Shitstorm, “the market reckoning was that the Commonwealth won Bankwest at half price”.
In 2010, the International Monetary Fund estimated TBTF banks got a 20 basis point cost advantage, on average. In 2015, the Reserve Bank of Australia concluded the “unexplained” cost advantage was 20 to 40 basis points since 2000 or between between $1.9bn and $3.7bn annually. The bank levy is six basis points.
After the GFC, the Council of Financial Regulators recommended a deposits tax and the Labor government included it in the 2013 budget, arguing it was a premium on the government’s insurance of the system but the tax was never implemented.
The Greens took a Parliamentary Budget Office-costed policy of a 20 basis point levy on the big five to the last election that would have raised about two-and-a-half times the government’s proposed $6.2bn levy.
But the Abbott government considered a 0.05% deposits tax in 2015, then rejected it.
You want to complain?
Compared to the bank levy, the Coalition’s other banking measures are getting little attention.
In July 2018, the government will establish an Australian Financial Complaints Authority (AFCA) – replacing the financial ombudsman, the credit and investments ombudsman and the Superannuation Complaints Tribunal. It will be overseen by the Australian Securities and Investments Commission (Asic).
Its decisions are binding on all firms to resolve disputes between the industry and consumers, small businesses and retail investors. All financial licensees must be members.
The government has yet to comment on whether AFCA will impose binding financial penalties.
Nor are there details about whether the size of the dispute will be capped.
Portable bank accounts
Anyone who has considered moving banks will know it is a nightmare of logistics. The thought of moving accounts, changing passwords, reregistering bills and swapping apps can be daunting and act as a brake on competition.
Even working out the best bank deal is like working out mobile phone plans. Life is too short.
The Coalition has promised to introduce an open banking regime to give customers access to and control over their bank data.
Catch: at this stage, it has only gone so far as providing $1.2m for a review, reporting at the end of 2017. Greens senator Peter Whish-Wilson wants the government to bring this forward as a way of stopping banks passing on the levy.
Executive accountability
Under the budget measures, senior bank executives and directors will need to be registered with the Australian Prudential Regulation Authority (Apra). The government will set also “additional expectations” (no details yet) for banking executives.
Executives who breach the rules could be deregistered and disqualified from holding executive positions, with bonuses stripped. They will face a new civil penalty of up to $200m will apply for larger institutions and $50m for smaller institutions.
The government promised to mandate a minimum requirement of 40% of an executive’s variable remuneration – shares, bonuses etc – and 60% for executives such as the CEO, to be deferred for a minimum period of four years to ensure executives are more accountable. Call it a good behaviour bond.
What next?
The banks have muscled up, led by a former Labor premier, Anna Bligh, and the former Treasury head Ken Henry, now chairman of National Australia Bank. Though banks have previously resisted Green, Labor and crossbench calls for a royal commission, Henry wants a full public inquiry into the funds “confiscated” by government.
But the levy has the support of Labor and Greens so, unless either of the major parties blink, the levy will pass while Labor has given the rest of the banking measures a firm maybe.
