Via The Australian:
The Turnbull government has warned the big five banks not to lie to their customers if they pass on a new $6 billion levy, AAP reports.
There are suggestions the banks may move quickly to raise mortgage rates by up to 0.15 per cent to compensate for the budget measure.
Prime Minister Malcolm Turnbull said that would be unwise.
“That would be really excessive,” he told Sky News noting there was already a lot of concern about the conduct of banks.
The Australian Competition and Consumer Commission would be watching them “very, very carefully indeed”.
Treasurer Scott Morrison went further.
“What the commission will be doing will be keeping an eye on them to make sure they don’t lie to their customers about this,” he told the Seven Network. The $1.5 billion the levy raises each year would come out of corporate profits of $30 billion this year, Mr Morrison said.
Poppycock! As Morrison said himself recently:
The Turnbull government is prepared to further intervene in the housing market, Treasurer Scott Morrison says, if the federal budget’s housing package fails to calm rising house prices.
…“We have taken steps, pretty significant but calibrated steps to address the heat at the investor level [in the housing market] through the regulations by APRA [the banking regulator], they are pulling loans back, increasing the required level of savings to actually access loans, whether for investors or otherwise,” he said.
…But if they did not go far enough and the housing market roared back to life in 2017 in the wake of the budget, Mr Morrison confirmed further steps would be taken.
So, the cyclical considerations are that if we have not seen enough tightening to end the boom then the banks should hike rates ASAP. If we have seen enough then they won’t hike anyway given the economic fallout will be profits-negative.
On a more structural level, the banks should also, quite rightly, be looking to pass on the tax. The purpose of a Tobin tax is to slow over-excited and destabilising financial transactions. In this case, imposing it upon liabilities is a direct attack upon the accumulation of wholesale funding, much of it offshore derived. As such, it will boost bank competition for deposits and if that results in lower profitability then banks should increase their margins by boosting mortgage rates.
This is structural reform in action as non-productive investment is displaced, opening space for more productive investment in tradables as less offshore dough is needed and the dollar falls.
It would be great for the economy over the long run!
