More good work from Chris Joye today, who has estimated that the Big Five banks receive more than $5 billion in subsidies from taxpayers every year. From The AFR:
So Standard & Poor’s has confirmed that Scott Morrison’s gutsy budget saved Australia’s coveted AAA rating…
A downgrade of the sovereign rating automatically triggers a one-notch reduction in the majors’ ratings to A+, which would have instantly increased their senior borrowing costs by about 0.10 per cent annually…
The 0.10 per cent interest saving Morrison secured for the oligopoly makes his new 0.06 per cent levy, which was the swing factor that salvaged the AAA rating, appear like an attractive trade…
What makes the hyperbolic opposition of both the banks’ (save ANZ and every smaller rival) and centre-right observers, including John Howard and Peter Costello, so absurd is that eliminating or pricing government subsidies to private businesses is a foundation principle of modern public policy and an even more important tenet for libertarians that want to minimise government interference.
According to RBA research in 2015, the “major banks have received an unexplained funding advantage over smaller Australian banks of around 20 to 40 basis points on average since 2000″…
The RBA’s 20 to 40 basis point estimate of the too-big-to-fail funding advantage implies that the majors capture an annual taxpayer subsidy worth more than $5 billion from their implicit government guarantee (using the wholesale liabilities identified in the budget).
This makes the majors by far the most publicly subsidised companies in the country…
Very well said. The bank levy is efficient because it will help internalise part of the cost of the Government’s support of the banks.
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.
