Wednesday, September 2, 2015

Today by Michael Lucy

Deposits and guarantees
Joe Hockey has given the banks what they asked for

In his brief stint as treasurer in 2013, Chris Bowen proposed a levy on bank deposits of a twentieth of a percent per annum. During the GFC, in 2008, the government had announced it would guarantee bank deposits of up to $1 million (later scaled back to $250,000). The proposed levy would function as a kind of insurance premium to fund that guarantee: the money raised would be stashed away in a special fund to be cracked open in case of a bank collapse.

The levy was scheduled to begin at the start of 2016 and, while the money it collected would in principle be quarantined, that money – estimated at some $500 million a year – was counted as revenue in the budget. When Bowen announced the scheme, the banks were clearly unhappy that they’d “have to pass this on to customers”. Whether they had to or not – between them, the big four banks posted after-tax profits of almost $30 billion that year – the banks have been steadfast in insisting that they would pass the cost along.

Bowen didn’t pass any legislation on the levy, but the Liberal government had until now acted on the assumption that it will be going ahead all the same (at least for budget purposes).

Yesterday, Tony Abbott and Joe Hockey held a joint press conference to announce that the levy – now called “Bill Shorten’s piggy bank tax” – would not go ahead. “This government is constantly on about removing the bad taxes that the former Labor government placed on our citizens,” Abbott said.

The justification for the cut was threefold:

  1. Tax is bad, and “a critical part of managing our economy is keeping taxes low”. Neither Hockey nor Abbott mentioned how they planned to plug the newly created gap in the budget.
  2. The tax would have disproportionately affected smaller banks, as deposits make up a bigger chunk of their business than is the case for larger banks, which lend more.
  3. The fund was no longer needed. David Murray’s Financial System Inquiry last year recommended that it would be better to require banks to hold greater reserves of capital as a buffer against collapse, rather than have the government fund a guarantee scheme. The banks have now acquired these greater reserves, Hockey argued, which obviates the need for the deposit tax.

The last two don’t sound entirely unreasonable, but the deciding factor may have been something else: “I have consulted with all the CEOs of the banks,” Joe Hockey said. “They put good arguments as to why it should not proceed.” It’s hard to argue with that.


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Michael Lucy

Michael Lucy is a writer based in Melbourne.



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