According to The AFR’s Phil Baker, RBA governor Phil Lowe is apparently concerned that the new levy on the liabilities of the Big 5 banks could be passed on to bank customers, leading to reduced retail spending and a weaker economy:
At at a time when the governor of the Reserve Bank is more worried about how consumers will react if house prices fall than anything else, he’s confronted with blazing headlines about what the government’s new bank tax will do to spending…
The key worry for Lowe is what sort of impact the tax will have on spending at a time when the retail sector, which is growing at its slowest rate in almost four years, and, according to some economists, is on the verge of a recession.
It’s entirely predictable that bank customers will get it in the neck, again…
Borrowers could end up paying anywhere between 12 basis points and 25 basis points more for their home and business loans if the costs were passed on to them…
That’s a tightening in monetary policy for sure.
The AFR’s scaremongering about the bank levy is getting a little nauseating for sure. Today’s front page is dominated by warnings of doom and gloom:
Surely the likes of Phil Baker recognise that the RBA can offset the impact of any ‘out-of-cycle’ rate rise by the banks by cutting the official cash rate by 0.25%?
Moreover, if the RBA is supposedly so concerned about the bank levy’s impact on consumer spending, retail sales, and the economy, then surely it is also concerned by the 0.5% rise in the Medicare Levy, which is a defacto income tax rise that will also crimp take home incomes and spending?
Indeed, without the $6.2 billion raised from the bank levy, taxes would need to be raised elsewhere or spending cut, to achieve the same Budget outcome. In either case, it would act as a drag on the economy.
At least the bank levy helps internalise the cost of the extraordinary public support that the big banks receive from taxpayers via the Budget’s implicit guarantee (which provides a two-notch improvement in the banks’ credit ratings), the RBA’s Committed Liquidity Facility, and other areas, all of which helps significantly lower the banks’ cost of funding.
The truth is, the banks have ridden the taxpayers for long enough, and the bank levy will at least claw back some return.
