There is an idea that runs through literature that goes like this – if you want to create a simple and compelling narrative then you need to create a monster, because monsters make hating, battling and fighting easy and they create heroes.
Creating a monster isn’t a new idea. Think the Bible and Satan; think Beowulf and the Grendel; think even Police Chief Martin Brody and the shark in Jaws.
Scott Morrison and Malcolm Turnbull have chosen their monster in this budget. It’s the banks. Specifically CBA, ANZ, NAB and WBC – oh and last, as an afterthought, Macquarie.
In the latest budget they levied the banks; adding a 0.06% fee on liabilities, which means all bonds and deposits above $250,000, and raising $1.5 billion a year in new revenue from the sector.
Make no mistake – this isn’t really a levy. It’s a super profits tax masquerading as a levy, masquerading as a regulatory change. Its none of these things. It’s a tax; it will be passed on to consumers and it will be (very mildly) inflationary.
Make no mistake (take 2), a new charge of 0.06% on the liabilities and deposits is the thin edge of the wedge. The Government has a new toy to play with in terms of raising taxes on banks and consumers – you should expect that to go up and down every year depending on the economic zeitgeist.
It feels to me like there are three main reasons why the politicians have turned their attention to the banks and if you can be at all bothered reading on here’s my thinking:
1. The banks make a lot of money: This is true, they do make a lot of money – in fact if you look at it terms of Return On Equity (ROE) then the Australian banks are the most profitable in the world with an ROE of 15% just pipping the Canadians who boast a 14% ROE.
But here’s the rub – in Australia we tend not to like businesses that are successful and more importantly we have been convinced – in some cases with some pretty compelling evidence – that the banks are gouging their clients with fees and practices that are grubby and even illegal.
The banks are already paying for that. Westpac has been repaying clients and has had internal costs of north of $250 million, ditto NAB and ANZ. So far the banks have mitigated this by promptly passing these fees onto their customers.
My insurer Comminsure sent me a kind letter this year telling me that my insurance cost had gone up 7.5% and Colonial First State who run my super fund let me know that they would be passing on a $102.5 fee for dealing with compliance.
However, that’s not the point – the point is that because the banks make a lot of money, they can be used – without significant voter backlash – to plug a $6.2 billion hole in the budget.
This is a heartbreaking work of staggering genius on behalf of Turnbull and Morrison – it’s a petroleum tax and a mining tax and a gambling tax – but this time on the banks – effectively a kind of super profits tax – but because the banks are a convenient monster – no one feels bad about it.
2. There Is A Glimmer Truth: Here’s a thing that we often forget – the Government underwrites the banks – they guarantee deposits, they regulate them and they by and large ensure that they don’t fail. The banks ought to pay a fee for that and if you want to see a country where the Government doesn’t do that take a trip to Russia. No Russian has any faith in the future and 6,000 banks went bust last year, which means that saving and investing doesn’t really happen and that’s not great for an economy.
How much should the banks pay for this, who knows? But $1.5 billion a year to be honest seems to be at the top end of reasonable.
3. The Bit Which Is Just A Big Get Square: Hidden in the Budget is a new law. Remember we are very good at putting new laws in and very poor at taking them off. Want to know where stamp duty on home sales came from? Elizabeth the first. She inherited a bankrupt state and wanted to fund a war on Ireland. Thomas Gresham – who was her adviser – introduced new taxes to fund it. So when you pay stamp duty you can thank old Gresham. So here’s the law: The Regulator can now impose fines of up to $200 million for misconduct and the regulator can now set the long term pay of bankers.
Did you get that bit? Fines of up to $200 million – there has to be at least another billion there for the Government when times are tough and the Government gets to set the long term pay of bankers. Not fund managers, not insurance executives, not superannuation executives, bankers.
It seems politicians don’t think the banks are well run (they are) and that bankers are paid too much (populism anyone?) and would like to do something about it.
They Think This Won’t Matter
The Government believes passing on this new 0.6% cost to the banks won’t matter because if they do then the second tier banks and credit unions will step up. To this, I say nonsense.
Australian banks win because they have the reach and the presence, the best and most reliable systems, the best internet interfaces and the best salespeople.
Utility in banking isn’t price for 90% of people, utility in banking is trust (in this case expressed as the chance of total capital return) and convenience and the banks win this in spades. This price change will be passed on, it will be absorbed by the clients and it will act as a hidden tax.
You all know of Francis Bacon, or at least if you don’t, you know his work. He lived in London in the 1500s and was lawyer, philosopher and scientist. He was largely ignored by Elizabeth the first but Knighted by James 1, but none of that really matters.
What matters is that he was clever, the foundation for the scientific method, understood people and he coined the phrase: “Nothing does a nation more harm than when a cunning man is mistaken for a wise one.”
To be honest that’s how I feel about this tax – it’s cunning, but is it wise?
