Bank tax may bite back

Try­ing to tax the big banks now could quite pos­si­bly lead to the con­sumer do­ing the heavy lift­ing in the fu­ture, writes Graeme McDon­ald

ABC (Australia) - - FI­NANCES - Graeme McDon­ald A mem­ber of the Money Re­sources Group

So the bud­get has come and gone and the world hasn’t come to an end de­spite what some peo­ple would make you think.

I could spend a lot of time com­ment­ing on what was in it, but un­til it passes both houses of Par­lia­ment there will be a lot of spec­u­la­tion.

You only have to go back a cou­ple of years when we had an elec­tion as a re­sult of part of the bud­get not get­ting through.

That said, the one pol­icy I think will get passed on is the tax on banks. Now, I am sure every­one will have their say on this – some will be for it and oth­ers will be against it.

Just as a bit of his­tory, it’s not the  rst time we’ve seen this type of tax.

We all re­mem­ber the Min­er­als Re­source Rent Tax on the min­ers in the coun­try. It was sup­posed to raise bil­lions of dol­lars but, be­cause of the way it was fi­nally passed through the par­lia­ment, it raised very lit­tle.

This tax on the banks is a dif­fer­ent model. It is sim­ply a tax on their prots. We all know the banks make bil­lions of dol­lars each year, and the ar­gu­ment is very sim­ple – you can af­ford to pay it with­out ac­tu­ally hurt­ing your busi­ness.

In part this is cor­rect – they can, but it’s the down­stream ef­fect it will have on other peo­ple that has to be taken into ac­count.

This tax will af­fect the amount of fund­ing avail­able to pay div­i­dends. Cur­rently, these big ve banks pay a very gen­er­ous fully franked (tax paid) div­i­dend, which, for a lot of re­tirees, is their sup­ple­men­tary in­come stream – the money they live off.

At the very least, the amount of money avail­able to pay these will re­duce by the amount of tax im­posed. The worry here is that while tak­ing from big busi­ness, the un­in­tended con­se­quence may be an in­crease in the cost to the gov­ern­ment via wel­fare pay­ments.

The gov­ern­ment has only tar­geted the top ve banks, and part of their rea­son­ing is that it pro­vides these banks a guar­an­tee that they have the right amount of cap­i­tal to trade.

Their view is, very sim­ply, ‘we have looked af­ter you and now it’s time to give some of that back’.

I think the is­sue in real terms is the pol­icy is  awed. The tax should have been di­rected at all banks and thus kept them all on an even play­ing eld.

While the trea­surer ar­gues that the big banks can af­ford it, you can be sure of one thing: they will look to re­coup it some­where and some­how. We prob­a­bly won’t no­tice it, but it will hap­pen.

As with my com­men­tary around June each year, make sure you have taken some time to speak to your ac­coun­tant and  nan­cial ad­vi­sor to en­sure you max­imise all the de­duc­tions and benets you can re­ceive this  nan­cial year. Spend­ing 15 min­utes now be­fore June 30 may well save you money.

Well, enough from me for this month. If you have any ques­tions or you want to dis­cuss any mat­ter, please feel free to drop me an email or give me a call, I’m al­ways happy to lis­ten and give you my opin­ion.

Pic credit: shut­ter­

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