John Kehoe at the AFR has a much better take than the initial reporting on the new bank deposit levy that appears to be coming:
While Labor’s move looks like a blatant cash grab as it tries to fill a budget hole ahead of the federal election, there are reasonable economic grounds for charging banks a fee for deposits insured by the government under the Financial Claims Scheme. Politically, it is also a calculated move because shadow treasurer Joe Hockey has previously raised concerns about implicit subsidies to the banking sector
Australia is almost the only country in the world that does not impose a fee for the privilege. More than 90 per cent of taxpayer deposit insurance schemes around the world are funded through fees on banks, including in Canada, the United States, United Kingdom and New Zealand.
That is the issue, the way it looks. This may not seem important but it is. Appearances of a cash grab give traction to the subsequent backlash PR campaign. The banks are not terribly popular with clients but they are with shareholders.
Kehoe goes on, noting that in 2009 the Council of Regulators concluded in 2009 that the free deposit insurance of the time created moral hazard and but in 2010 they concluded that a pre-funded scheme for bank failures would be expensive and it was better to use a top up approach if it came to that. However:
..the March 2011 documents show the council’s view had evolved. It says a fee could be between 0.02 and 0.05 of a percentage point, set at the same rate for all institutions, and the funds collected in a “ring fenced” special purpose fund.
Council members had differing views on replacing the current scheme with an annual insurance fee. “However, they agreed the council should recommend to the government that it undertake public consultation on the merits of introducing an insurance fee,” the minutes state.
Again, it’s the politics that determines the success or failure of the proposal.
