Westpac fat cat has big whinge over bank levy

By Leith van Onselen

Westpac chairman, Lindsay Maxsted, is the latest banking fat cat to decry the Turnbull Government’s 0.06% levy on the liabilities of the Big Four banks and Macquarie. From The Australian:

Chairman Lindsay Maxsted says the levy is a “highly inefficient and distortive tax” that places an impost on a small number of Australia’s largest taxpayers, adding that Westpac and its shareholders must “continue to agitate for its removal”.

“It discriminates against Australian banks relative to global peers and it has impacted the value of your investment and the investments of millions of superannuation holders across Australia,” Mr Maxsted said in Westpac’s annual report.

Slow learners these banksters. Let me explain, yet again, why the banking levy is justified.

The major banks benefit from an implicit guarantee from the taxpayer, which the RBA estimates is worth between 20 and 40 basis points a year, or more than $5 billion. This guarantee is why the big banks receive a three notch ratings upgrade on the smaller banks, who are not considered to be government-guaranteed.

The bank levy ensures that the major banks will give back only 0.06% of this subsidy, or $6.2 billion over a four year period ($1.55 billion a year). Thus, the major banks are still ahead each year to the tune of somewhere like $3.5 billion.

Does Lindsay Maxsted or his rent-seeking mates seriously believe that the major banks should be allowed to receive billions in taxpayer support annually without paying a cent for the privilege?

When you or I take-out insurance, we are required to pay. So why shouldn’t the banks? The bank levy is efficient precisely because it helps to internalise part of the cost of the Government’s support.

For a well-thought assessment of the bank levy, I highly recommend that you listed to The Australia Institute’s latest “Follow the Money” podcast: Episode 19 – why a bank levy is a great idea.

The arguments therein are far more compelling than those put forward by Lindsay Maxsted and his fellow banksters.

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Comments

  1. Bankster’s still don’t get it.

    Average punter’s process of deduction:
    – Banks posting multi billion dollar profits
    – “Blah blah blah,” Banks whinging about how hard they’ve got it again
    – Banks still posting multi billion dollar profits
    ???
    -Tax the greedy wankers!

    They’ll end up with a RC if they’re not careful.

    • Very economically inefficient “tax” , this levy is ; you have to understand that, please.

      Efficiency in tax issues is predominantly determined by:- value-added processes being taxed ( rather than the simple level of the liability being taxed, as is the case now ), the tax being of a progressive nature [ higher underlying tax bases attracting higher proportions of taxation liability and the mitigation of an ability/ mechanism to pass-on the tax. On these measures, the current bank levy fails …. and horribly so.

      The banksters bleating about the levy is well grounded in terms of real underlying conceptual issues relating to financial, tax and economic considerations.

      • So if we re-position it as a subsidised charge for providing the value-add service of improving the credit rating of the bank and commensurately decreasing funding costs, allowing greater profits, does that work for you?

      • adelaide_economistMEMBER

        Yes because other than the bank levy all our other taxes are ideal. Lol. The best tax is one on immobile factors of production and that means land tax. I’d happily trade the bank levy for one of those.

      • Very interesting. How would you structure a tax to ensure that the banks pay in an efficient and equitable way for the insurance that they are currently receiving from all Australian citizens?

      • Phil,
        This is the sad outcome of this levy, plain and simple: – the banks will pas it on; the levy will be indiscriminately apportioned to the bank’s clients and this means the banks effectively WON’T be taxed = defeats the whole purpose. Respectfully, your proposition is out-of-sync with the issues involved.

        LSWCP
        Simply add a levy to their tax rate- simple, and that then meets the criteria I specify in my original post

        Cheers

      • Son of funky is talking total rubbish. The levy is completely non-distortionary as it is elastic only to the size of the balance sheet, not any particular activity of the bank.

        It is also very administratively efficient, as a 6th grader can read the balance sheet of each big bank and multiply by 0.6%. Collection costs minuscule.

        What’s the problem?!?!

      • Funky, if you add it as a simple corporate tax increment, won’t it de-link the levy from the reason it is in place i.e. lending sovereign credit rating to liabilities? And if I’m an Australian investor, which I will be if i have any superannuation in equities, won’t I get it back as a franking credit anyway, thus making it revenue-neutral to the Government? If it’s a simple levy on top of corporate tax, what difference does it make other than being a higher rate on a smaller amount?
        The banks can decide if they are “taxed” or not by absorbing as an input cost, or passing on to customers and absorbing any loss of business through non-competitive rates. In reality I totally agree with you, and under any scenario the borrowers will pay for the levy as the banks will pass it on regardless, since 0.06% is not going to make your product non-competitive when you have a funding advantage of 20+bps. So as a government you may as well pick the simplest method possible. Which admittedly runs contrary to the demonstrative incompetence of our politicians, so maybe this was just an outlier.

      • If you read my comment subsequent to my initial post, then you would have seen see that your Anna Bligh question is just … I don’t know what … or maybe you won’t see that ; can some-one please explain my position – as set out above in my two posts – to this paid member. Thanks

  2. The guarantee should be inverted.

    100k limit for the 4.
    250k for the rest.

    It’ll drive consumers to incidentally rebalance our banking system.

    • Even better, create a new nationalised bank to provide basic essential services – term deposits, transactions accounts, fixed-rate P&I, OO-only mortgages, low-interest fee-free credit card – and explicitly state it is the only bank with a deposit guarantee.

      Then let “the market” do its thing.

  3. The Cynical AdviserMEMBER

    I don’t know why they’re whinging, they are already manipulating rates. Term deposit clients are getting 10-15 bps less now that what they were 6 months ago. If anyone truly believes they won’t charge the levy in higher borrowing/lower deposit rates are demented. Banks are gods of the margin. Try policing that. They just throw up smoke screens like the comments above, or trot out the usual ” global borrowing costs have increased”!

    • I had my house deposit in an so-called “high interest” account for a while…a pretty big chunk of change, at least by my standards. The interest I earned on that would’ve bought me one beer per day at my local pub.

      Meanwhile, my credit card with the same bank had something like 15%pa interest charges. Not that I ever pay CC interest, but still, the people who run the Australian banks surely qualify as some of the most worthless, despicable vermin walking on the face of the planet.

  4. The question is , How much profit is enough for these bunch of scum?
    They do not manufacture goods, cars or even a needle. They do not cultivate or raise crops, they do not provide employment to the society (recent cuts announced), they are not feeding, breeding, or raising livestock; they are not farming or producing a useful common good. Rather they are sucking everyone’s blood (the actual contributors to the society )as fees for thieving services.

    They are more of a social burden on a society (debt provider) .

    Nationalize these scum for goodness and society’s sake

    • Yes and they are the face and being of the modern ‘false’ economy but lauded as the most important part of our economy as I argue constantly with people who should know better. Not even our politicians understand this. As you say they produce nothing and do little service to the community. Ticket clipping and skimming the cream off the top of every single financial transaction in the country is not an ‘industry’ and in fact acts more like a private taxation system.
      This in fact is core to the dogma and religion of neo liberalism… ;They’ would scream ‘communism’ and ‘rape’ if we were to reintroduce real state and commonwealth banks working for the real people and every second page of every paper in the country would have a full page add proclaiming it as such

  5. HadronCollision

    I don’t know why you think they’re slow learners.

    It’s got nothing to do with that.

    Jeez

  6. truthisfashionable

    Why don’t we (or perhaps we do) charge the banks the “official cash rate” on all money they create out of thin air?

  7. Answer is not to tax the banks. Answer is to remove the govt guarantee and any other policy which protects/supports them and let the free market sort them out. Competition and disruption will take care of the rest.

    • There are no limits to greed. Been proven over and over since recording history began. This is also the failure of modern economic and political thinking. The market is not the level playing field they spout about and becomes less so exponentially with time. Neo Liberalism big flaw. Hence we only need about 4 billionairs to own as much as 50% of the worlds population combined. Even 2 years ago it was around 7 billionaires. and so on.