Does Labor support the bank levy or not?

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By Leith van Onselen

Labor’s pedantry over the bank levy has returned, with Treasury spokesman Chis Bowen labeling Scott Morrison’s claim that limiting the levy to the big five banks only would eventually boost competition as “complete rubbish”. From The AFR:

…smaller and regional lenders have quietly increased their home loan rates for investors in recent weeks in line with the majors, bolstering shareholder profits…

A spokesman for Mr Morrison said regional banks had been repricing products deemed higher risk, such as interest only loans for investors, in line with recent measures introduced by the Australian Prudential Regulation Authority to reduce overall risk in the banking sector…

“Long term the Government expects more competition in the financial services sector from the major bank levy”…

But shadow treasurer Chris Bowen seized on regional banks’ moves to renew criticism of Mr Morrison’s handling of the bank tax.

“Scott Morrison mismanaged the bank levy on almost every score and we see more evidence – as if it was required – that the Treasurer’s argument that the bank levy was somehow about promoting competition is complete rubbish,” he said.

Would Labor prefer that the bank levy did not go ahead, thus costing the Budget $4 billion over the forward estimates (according to their costings) and allowing the banks to receive billions in taxpayer support annually without paying anything for the privilege?

As noted by Bendigo Bank CEO, Mike Hirst, back in May:

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“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”.

Whereas Chris Joye has estimated the big banks receive more than $5 billion in subsidies from taxpayers every year.

The bank levy is efficient because it helps to internalise part of the cost of the Government’s support of the banks. It is also supported by most smaller authorised deposit-taking institutions.

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Instead of trying to score cheap political points over the levy – and playing straight into the big banks’ hands – Labor should have argued from the get-go to raise the levy further in the interests of the Budget and recovering the costs of taxpayer support, just as The Greens did.

Cheap political point scoring and tribalism are key reasons why undertaking reform has become next to impossible in Australia. Whenever a government comes up with a sensible policy, worthy of bipartisan support, the opposing party almost always rejects it.

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About the author
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness. Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.