Bank levies don’t “cost jobs”, they create them

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Gail Kelly says so:

Former Westpac chief executive Gail Kelly has slammed the proposed South Australian bank tax, warning a short-term “sugar fix” sought by the Weatherill government will ultimately mean less ­investment and fewer jobs.

In her first public remarks about the controversial impost, Ms Kelly yesterday told The Australian that a “quick fix, a sugar fix” to South Australia’s economic woes from the planned tax would in the long run be “unfortunate” for the state.

“Banks will make decisions that ultimately will mean over time there’s less investment in the state, less jobs in the state and so, in the long run, I think it will be a very sad day if it’s approved,” she said yesterday. “I think it will ­really be very disappointing … while it might provide what might feel like a short-term benefit for the state budget — a quick fix, a sugar fix — in the long run it is not going to be good for South Australians or the economy.”

But this is selective analysis. I doubt it will cost any jobs in finance but if it did owing to higher costs then it’ll be offset in the wider economy as it has some marginal impact in activity and interest rates lowering the currency.

What the bank levies will do if they’re tough enough – alas, they are not, only adding up to 8bps of 16bps of free bank guarantees – is force the banks to price credit correctly vis risk. That will raise the cost of mortgages a little, lowering house prices a bit, and shifting activity to tradables as the currency falls.

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In short, bank levies will create jobs in sectors that don’t grow debt.

No wonder they hate them!

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.