Better off without bank tax
THE Federal Government’s decision to finally dump a leftover Labor plan to have a banks deposit tax as an insurance against a major failure in the finance sector is welcome, even if it raises more doubts about the ability to rein in the still-too-large Budget deficit.
If we were to believe the rhetoric of Prime Minister Tony Abbott, this was another tax on people’s savings, even if it is imposed at a low rate on the banks and not depositors.
It does add to the cost of banking and would have been passed on to customers one way or another.
Any move to lower the tax burden on business can only help, especially at a time when economic indicators are pointing to a deteriorating situation within Australia and internationally.
The argument for the tax – which was opposed by the head of the Financial System Inquiry David Murray – lost some of its force when new prudential regulations would increase the capital adequacy requirements of financial institutions.
The $500 million a year it was expected to raise needs to be measured against the possible disruption of the banking sector. The playing field could easily be skewed in favour of big banks as smaller institutions lose customers who find saving less attractive.
At the same time the big banks could be forced to rely on the riskier wholesale funding markets which were tested during the global financial crisis.
We are better off without this leftover Labor tax.