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
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 prots. 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 benets 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.
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