Economics: Bank Levy Script Essay

1176 words - 5 pages

Economics Bank Levy Script

The 2017/18 federal budget was recently announced, and an interesting new measure that it introduced was a levy applied to banks with liabilities above $100 billion. This measure will affect the Big Four banks Commonwealth Bank, National Australia Bank, Westpac, and ANZ, as well as Australia's fifth largest lender: Macquarie Bank. Provided it passes through the senate, the levy will kick in on July 1st, 2018, and will be calculated "quarterly at 0. 015% of the bank's licensed entity liabilities." (Australian Treasury, 2017) The federal government forecasts that the introduction of the new levy will net, "approximately $1. 5 - $1. 6 Billion per year," (Australian Treasury, 2017) for four years, with forward estimates predicting that the levy will roughly, "raise $6. 2 Billion," (Australian Treasury, 2017) in this time. The purpose of the levy is to increase the government's revenue and thereby decrease the federal budget deficit. The government has deemed it important that it balances the budget as it has been in deficit since 2009 after the GFC. The introduction of the bank levy, although having its merits, would negatively affect the average Australian too greatly and thus should not be implemented.

Four of the banks affected are all publicly traded banks, with many Australians holding shares directly and indirectly through superannuation. This means that if banks were to absorb the cost of the levy, the millions of Australians who own bank shares would lose out, as the tax would cut into the bank's profits and affect the bank's share prices as well as the payout of dividends to shareholders. Already at the announcement of this measure, shares in the big banks have fallen, negatively affecting many everyday Australians who hold shares in the banks. Dr. Ken Henry, NAB chairman, in a statement to shareholders, has stated that if banks let the tax affect their profitability that it would negatively impact, "the 570, 000 people who own shares in the bank directly and the millions of Australians who own NAB shares through superannuation funds." (Henry, 2017) This number gives an idea of the amount of everyday working Australians that would be affected by the bank tax and thus, it should not be implemented due to the great negative impact it would have on many Australians.

A major concern with this tax is that to spare shareholders, banks may pass on the new costs to customers. Again many everyday Australians may take a massive hit at the introduction of this tax. The big banks can simply pass on the cost to their customers by either raising the interest rates they charge borrowers or lowering the interest they pay depositors. This will hit every day, working Australians the most as the country has one of the highest levels of household debt in the world, according to the OECD. Morgan Stanley bank analysts have said in a note to clients that, "Over the past two years, the banks have demonstrated th...

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