Following the South Australian government’s surprise move to introduce its own banking levy on Thursday (22 June), the Australian Bankers' Association (ABA) and the major banks have come forward criticising the move as an “outrageous cash grab” without policy substance.
“States are not responsible for banking policy. There is absolutely no policy reason for this announcement, other than a need for the South Australian Government to raise revenue in a desperate political move,” said ABA chief executive Anna Bligh
in a statement.
With an unemployment rate of 6.9% – the highest in the country – South Australia was a state that sorely needed economic confidence, she said.
“Today’s announcement is the worst possible signal to the business community in South Australia and will make South Australia less competitive, potentially driving jobs to other states.”
She slammed Australia’s tax policy in general, saying that it had become a joke “at the whim of political opportunism,” adding that the move by South Australia was a way to bring in “triple dipping” for bank taxation.
“The banks impacted by this proposal pay full corporate tax, the Federal Government has just passed a new bank tax and now the South Australian Government is trying to impose a third state tax,” Bligh said.
Too many benefits
The proposed tax will affect the big four banks plus Macquarie and is expected to raise around $370m according to the state government’s forward estimates.
As well as making “super profits” from South Australian mortgage holders, state Treasurer Tom Koutsantonis said the banks had benefited from the federal decision not to apply GST to the financial sector.
“The Commonwealth’s major bank levy seeks to address this, but ignores the state’s share,” he said. “Major banks also capitalised on the Global Financial Crisis, acquiring many smaller financial institutions and growing their market share to a combined 80%.”
“We are putting South Australians first by supporting growing industries that will create jobs for South Australians, and this measure will help raise the revenue we need to drive those initiatives.”
As the levy will not apply to mortgages or deposits under $250,000, there was no justification for the banks to pass this cost onto those customers, Koutsantonis said.
Analysts from UBS, Jonathan Mott
and Rachel Bentvelzen
, remain cautious on the big four banks, saying that “Pandora’s Box is officially open”.
“It is just six weeks after the announcement of the Federal Government's Bank Levy and the banks are already seeing a further increase in tax,” they wrote in an Australian Banking Sector Update on Thursday (22 June).
They expect the banks to push back against the SA levy in an attempt to stop other states and territories following suite. This can be achieved in a number of ways including:
- Challenging the legality of the state-based levy
- Increasing interest rates on SA mortgages and corporate loans
- Repricing the loan book of BankSA (a Westpac subsidiary)
- Threatening to move operations out of the state
- Rationing credit within the state
In addition to potential state-based levies being introduced, Mott and Bentvelzen said there was also the possibility of further increases in the federal levy especially if the national budget remains under pressure.
Poor policy concerns
The big four banks have also expressed their disappointment with the newly announced tax, citing a range of reasons why the move will have potential consequences.
“Australia’s economic potential will only be met when state and federal governments deliver sustainable budgets and don’t indiscriminately add new taxes or levies,” said Commonwealth Bank CEO Ian Narev
“Governments state and federal need sustainable plans to balance their budgets rather than penalising businesses that are creating jobs and driving economic growth.”
ANZ chief executive officer Shayne Elliott said the tax was “deeply concerning” and likely to impact business investment in South Australia.
“All businesses will rightly question the political risk associated with investing in a state with a government prepared to unfairly target an industry that has played a significant role in supporting its lagging economy,” he said.
He criticised the South Australian Treasurer for having a “clear lack of understanding” about the role of the banking industry within the state.
Westpac said that the move was “bad public and economic policy” which was not in the interest of South Australians.
“We were disappointed by the Federal Government bank levy, but the SA proposal is double taxation and is a disgrace. The South Australian economy faces challenges but populism will not deliver the robust and sustainable economy South Australians deserve. As we have previously noted, there is no ‘magic pudding’,” the bank said in a statement.
Finally, National Australia Bank (NAB) said the announcement was “poor policy without logic”.
“The role of the Australian banks is to support customers and communities and drive economic growth and activity. It is not to be a blank cheque so governments can cover their own budget shortfalls,” NAB said in a statement.
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