The AFR’s Chris Joye has slammed the Abbott Government’s decision to drop the bank deposits tax, claiming that it is at odds with moves internationally and embeds moral hazard into Australia’s banking system:
So let me get this straight. After the four peak government agencies that oversee Australia’s financial system recommended taxpayers should receive a proper fee for the free default insurance they provide for $750 billion of bank deposits, Tony Abbott rolled his Treasurer’s correct call on the matter because he doesn’t want another “Labor tax”?..
The truth is that the policy principle of not giving away public insurance to banks for free has been embraced by pretty much every developed economy in the world, and was explicitly advocated in writing by the Council of Financial Regulators…
Contrary to Abbott’s misleading claims, this is neither a tax nor a Labor proposal. We are talking about a premium for free deposit insurance that was advised by our best bureaucrats because it minimises the “moral hazards” that arise when you give bankers a “heads we win, tails taxpayers lose” incentive structure.
The Liberal Party is meant to reflexively support policies that remove or minimise public subsidies of private companies and here we have Abbott giving a free kick to the world’s most profitable banks. The decision is demonstrably bizarre…
Much to the dismay of some MB readers, who ferociously attacked me in the comments, I backed the bank deposits tax on similar moral hazard grounds.
They will no doubt be satisfied with the outcome.
