CANBERRA: The federal government is planning a tax on bank deposits at the May budget in a move that will raise about $500 million a year but which bankers warn could be passed on to customers.
Sources have told AFR Weekend that the government is set to proceed with the bank deposits insurance levy, first proposed by the former Labor government, to shore up revenue and to act as an alternative to forcing banks to hold extra capital as insurance against collapse.
Tony Abbott has ruled out going after households in the May 12 budget following the negative reaction to measures in the 2014 budget.
The bank tax, as proposed by Labor ahead of the 2013 election, where it lost government, would be a 0.05 per cent levy on every deposit of up to $250,000. It was scheduled to start on January 1, 2016, and budgeted to raise $733 million in its first 18 months of operation.
The federal government is planning a tax on bank deposits at the May budget in a move that will raise about $500 million a year.
The federal government is planning a tax on bank deposits at the May budget in a move that will raise about $500 million a year. James Davies
The money would be put in a Financial Stability Fund and be used to protect depositors against the highly unlikely event of a bank collapse. In the meantime, the fund would also be used to offset gross debt. If the Coalition adopts the same model as Labor and if banks pass the levy on to customers, it would mean a term deposit currently paying 2.6 per cent would pay 2.55 per cent.
The-then Coalition opposition originally criticised the idea, but then adopted it as an election promise, citing the “budget emergency”. Upon winning government, the Coalition referred the proposal to David Murray’s Financial System Inquiry, which recommended against the idea and suggested a different model.
As revealed by The Australian Financial Review on Friday, the banks are gearing up to fight the move.
ANZ chief executive Mike Smith told AFR Weekend that “with deposit rates where they are at the moment, why do you want to hit depositors again?”
“Why impose another tax on the savings of the elderly and retired? I don’t understand this. It’s not well thought-out.”
Asked about whether this would drive savers into riskier assets, Mr Smith said: “I think it will further encourage inappropriate behaviour.”
In tactics similar to those used by the Minerals Council of Australia when it fought the mining tax, the Australian Bankers’ Association released a report on Friday claiming the sector was already heavily taxed.It said that for reporting year 2014, taxes paid to all tiers of government by banks totalled $13.7 billion, up from $11.9 billion the year before. Taxes included corporate tax, new unrecoverable GST, payroll tax, policyholder tax, fringe benefits tax, land taxes and council rates and stamp duties.
It claimed Australian banks already paid a higher effective tax rate than many of their OECD counterparts, and paid more tax in Australia out of the top-25 ASX200 industries.
Shadow treasurer Chris Bowen, who announced the proposal when he was treasurer, said the government had been hypocritical.
“They attacked this Labor measure, which was recommended by the Council of Financial Regulators, as a tax grab on individual bank accounts,” he said.
“They then took it as policy, but then in government couldn’t make a decision on it, referred it to Murray, who recommended against it, but have now decided to keep it.
“This botched process to get back to where Labor was in August 2013 just shows how Treasurer Hockey has no idea when it comes to the economy and business certainty or leadership.”
With the government having to go softly in the budget for political reasons and with revues falling again because of decreasing iron ore prices, a Coalition source said the government could ill afford to forego the revenue from the levy.
