Joye: Banks get $5b annual taxpayer subsidy

By Leith van Onselen

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.

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  1. So why didn’t the government bring it in earlier, especially given the budget repair measures that were implemented (under Labor). Leads me to think that the recent bank levy is more personally motivated (with a bit of political scoring over a hated group in our society) rather than budget repair motivated. Begs the question, if Anna Bligh wasn’t appointed to her position, and ScoMo’s team member was, would this levy be in existence today?

    • Because this tax does not hurt poor voters. The $6 GP tax would have hurt the poor the most – which is why the LNP was so keen on it. They did not even start at $1 and ramp it up – they wanted to start it at $6!

      Some ideas are only recently thought of – like charging the kids of some 457 visa staff for studying in government schools. Gee, why did they not think of that in 2014?

      The states are still to stupid to charge all kids of all 457 visa staff.

  2. HadronCollision

    Could this 0.06 be initial positioning for a higher rate?

    Lots of commentary saying how cheap it is…

    • I believe the Poms did a similar thing a few years ago, and there’s been something like 9 subsequent increases in the rate since it was introduced.

      Once you open the tap on an easy stream of gold it’s easier to keep opening it than it is to turn it off. Wouldn’t be surprised to this at 1.5% in 2 years time.

    • You could apply it to lots of things. Raise the luxury car tax to 50%. Have a 900% tax on luxury showers and toilets. Put a $6 surcharge on each tungsten light bulb. Easy revenue.

  3. Banks are able to establish a mountain of loans because interest rates are maintained at negative RAT levels. These interest rates result in a $50 to $60B CAD I wonder what is the TOTAL subsidy the people of this country give to the Banks. I think Cameron Murray’s number of $20B is much closer to the mark and I would consider still much understated.

    • Even StevenMEMBER

      Unlikely Flawse. Total bank profits are around $35bn, I believe. You’re saying $20bn comes from the taxpayer? Not sure it passes the smell test.

      • I think you need to read what I have said.
        I KNOW their collective profit is $30B!
        Thinks about stories of my parents mother and embryo juices of birds.

      • Even StevenMEMBER

        I’m not telling your grandmother to suck eggs, Flawse. The claim of subsidies to the tune of $20bn smacks of ‘if banks weren’t banks, and we completely redesigned the banking and monetary system as we know it’ then maybe the $20bn might have some relevance.

        But I’m a practical person, and back down on Earth, the direct subsidies wouldn’t amount to anything like that.

  4. I have a better option. Scrap the taxpayer funded guarantee and then scrap the levy! Problem solved !

  5. Tassie TomMEMBER

    “This makes the majors by far the most publicly subsidised companies in the country…”

    I don’t know – the superannuation funds management industry is very heavily publicly subsidised too…

    … Hang on – that’s mostly owned by the banks too.

  6. wasabinatorMEMBER

    Anyone else who has had the displeasure of working for any of thw Big 4 knows this will go straight into the pockets of what are amongst the most useless layers of managers in the world.