Bank on paying up
Townsville THERE are a number of things to be said about Scott Morrison’s big bank levy.
First, you will pay it. You will pay it either as a shareholder, as a borrower or as a depositor – and most probably as a mix of all three.
There are no big pots of gold sitting under the desks of Ian, Andrew, Shayne and Brian, oh, and of course Nicholas – the CEOs of the big five banks, respectively Ian Narev, Andrew Thorburn, Shayne Elliott, Brian Hartzer and of course Nicholas Moore – which belong to some disconnected entity: “The Bank.”
All the money coming in to each of the banks, as indeed with any company, comes from borrowers ( customers); all the money going out is paid to depositors and other lenders ( suppliers); what’s left belongs to shareholders.
Second, it really is trivial in the scheme of things – that’s to say, in the two schemes of things.
It’s trivial in terms of the Budget. It will raise $ 1.5 billion or so a year.
Compare that with the $ 433 billion total of revenue that will be raised this coming year, heading for $ 526 billion in 2020- 21.
Almost every one of those dollars will also be paid by you, but that’s also another – albeit, maybe, the – story.
You can pay some of the money via the levy or you can pay it by another tax. Now, this coming year the deficit will be $ 29.4 billion; without the levy it would have been around $ 31 billion.
In 2020- 21 a surplus – ha- ha – of $ 7.4 billion is forecast; without the levy it would still be – if you’ll excuse me, ha- ha, it’s hard to stop laughing – nearly $ 6 billion.
In fiscal sum and in neither here nor there.
It’s somewhat less trivial in terms of the banks themselves, but still not that overwhelming. fiscal short,
Next year the five are headed for a combined pre- tax profit of around $ 50 billion.
That’s an entirely reasonable number and one you should be very happy about.
Trust me, you would not find pleasant an Australia in which the big five banks were only earning, say, $ 5 billion together.
The levy will, as noted, take $ 1.5 billion of that $ 50 billion; the banks will then get roughly $ 500 million back in lower company tax as the levy’s deductible; so it’s actually going to cost them around $ 1 billion of the $ 50 billion. Cost you.
Third, the levy is forever. It will never be abolished; it will almost certainly never be reduced; it might be increased at some future date.
The banks wanted the legislation to have a “sunset clause”; that the levy would either just go away after a number of years ( like the 2014 Budget emergency high- income levy is supposed to, come July 1) or “when the Budget was back in surplus”.
The Government was never going to do the first.
The history of the high- income levy demonstrated that – when it was imposed it was going to end at the start of the coming fiscal year when the deficit would be all but disappeared at just $ 2.8 billion.
As noted, the 2017- 18 deficit is forecast to still be $ 29.4 billion.
So you can see, by the by, why I am – to use a gentle word – sceptical of the deficit supposedly now all but disappearing in 2019- 20, just two years “late” when it’s forecast to be a curiously similar just $ 2.5 billion.
As a consequence, in my judgment, the second form of “sunset clause” also wouldn’t have helped the banks.
As the deficit is never going to disappear we are never going to arrive at that “sunset”. So far as Budget deficits are concerned we could be living in the world of the midnight sun.
But even so, do you really think this government, any government, is going to cut a tax on “big nasty, hugely profitable banks” ahead of any of a myriad other taxes? Of course not.
Now who exactly ends up “paying” the levy will depend on market dynamics and what happens after we lose our triple- A credit rating and the big banks themselves are consequently downgraded.
My advice to the Treasurer is to “butt out” of trying to tell the banks how they should apportion it.