Former RBA Governor, Bernie Fraser, appeared on ABC’s The Business last night to decry the “populist” 0.06% levy on the big 5 banks’ liabilities, instead calling for a progressive company tax across the board:
Bernie Fraser: They’ve picked probably the most popular measure in the Budget to start with and it’s the most popular measure because it addresses the banks who are probably the most unpopular businesses in the country. But is it good policy? I don’t think it is. It has a bad look to it in my view. It looks like a sort of populist policy based essentially on the unpopularity of the banks. And it’s an easy target for the banks to raise some revenue. But populist policies based upon grievance about particular institutions is not the way to build a good, constructive, efficient kind of society and country that we want.
Elyse Morgan: Do you think it will hurt the economy?
Bernie Fraser: It won’t hurt the economy in any obvious way, but in terms of developing the kind of fair, prosperous and coherent society that we want – and that should be the ultimate goal of policy… But when you start making populist policies on the basis of grievances that affect particular groups of people, that won’t lead to a sustainable society that everyone talks about wanting – a prosperous, more decent fairer society.
Elyse Morgan: The Government says that this is fair because the banks actually enjoy a lot of support from the taxpayer. They had billions of dollars of support during the GFC. They have billions of dollars to back deposits. And then they have billions of dollars to access to help fund their liquidity via the RBA. So, doesn’t it make sense that the banks should be paying for that?
Bernie Fraser: Maybe the banks can afford to pay more tax… But it’s a discretionary tax. If the Treasurer believes that there are big companies out there in banks, there are also big companies in other sectors… A fair tax would not be discriminatory based upon the unpopularity of the banks… In other words, you would have a kind of progressive company tax…
Bernie Fraser is way off point here.
First, implementing a progressive tax system for companies, while okay in theory, would be incredibly hard to implement and would also complicate the tax system.
Second, the big banks are unlike other companies in that they receive massive taxpayer support, which lowers their cost of funding and enables them to make super-sized profits. Is Fraser not aware of the Budget’s implicit guarantee over the banks (which provides a two-notch improvement in the banks’ credit ratings), the RBA’s Committed Liquidity Facility, or deposit insurance?
The bank levy is efficient because it will help internalise part of the cost of the Government’s support of the banks. As noted on Tuesday by Bendigo Bank CEO, Mike Hirst:
“The Reserve Bank were asked to estimate the benefit of that implied guarantee and they estimated that benefit for the major banks at about $3.8 billion a year. So, they’ve been asked to give back $6.2 billion over a four year period which is about $1.55 billion a year. They’re still ahead each year to the tune of somewhere like $2.3 billion”.
If anything, the levy should have been higher – say 0.18% – to fully cover the cost of support provided on behalf of taxpayers to the banks.
