The Customer Owned Banking Association, which represents credit unions and building societies, has lodged a pre-Budget submission to the Government calling for a levy on the Big Four banks, as well as a 50% tax cut on deposits in exchange for a reduction in superannuation concessions – reforms that could save the Budget $1.4 billion a year by 2017. From The AFR:
“Applying a levy to systemically important banks will support financial system stability,” COBA CEO Louise Petschler said.
“It will recognise the financial benefit the big four receive from their ‘too big to fail’ implicit government guarantee”…
COBA claimed that deposits were “taxed more heavily” than other forms of savings or investment, putting them at a disadvantage.
In order to level the playing field, the government should allow a 50 per cent discount on all interest earned in deposit accounts, reducing the tax paid by savers, COBA argued.
“In the current low interest rate environment, with the cash rate below the inflation rate, real interest rates are negative, meaning it is difficult for depositors to maintain the real value of their cash holdings in pre-tax terms, let along once tax is taken into account,” Ms Petschler said…
“Fairer tax for deposits has additional benefits, including providing a larger pool of stable funding for the banking system and promoting competition in banking.”
…we recommend that the costs of the tax concession on deposit interest be fully offset through changes to the tax treatment of superannuation,” the submission said.
These are sensible reform proposals by the COBA.
As Deep T revealed last week, APRA’s treatment of Domestic Systemically Important Banks is inadequate, with the Big Four not actually required to hold additional capital despite their substantial taxpayer support. Accordingly, Australia’s big banks continue to receive a substantial funding advantage over smaller ADIs, skewing the competitive landscape. The proposed levy would, therefore, assist in redressing this imbalance, while reducing risks to taxpayers.
Offering tax breaks on deposits in exchange for a reduction in superannuation concessions is also a positive move. Australia’s obsession with property investment has been born, in part, from the tax advantages it offers over savings, which are taxed at one’s full marginal rate. By leveling the playing field, the Government would help dampen property speculation, increase the nation’s savings, and reduce the banks reliance on offshore financing. And what better way to pay for it than by winding back generous concessions on superannuation, which in their current form cost the Budget billions in forgone revenue, but do little to ameliorate pressures on the Aged Pension.
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