Morrison warns big banks to absorb new tax

Sherry Gomez
12:14, May 12, 2017
Copyright 2015 All rights reserved. This material can't be published, transferred, copied or redistributed.
Copyright 2015 All rights reserved. This material can't be published, transferred, copied or redistributed.

An increase in the Medicare levy for all Australians, a new tax on the country's five biggest banks, and new measures to crack down on multi-national tax evasion were the centrepiece of Tuesday night's federal budget. In a clever political move, the Treasurer has exempted customer deposits of less than $250,000, as well as superannuation and insurance funds.

"Our decision to increase the levy reflects the fact that all Australians have a role to play", Mr Morrison said.

The Commonwealth Bank share price, along with that of rivals National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC), went into a nosedive earlier this week when the Government announced a Big Bank tax.

Scott Morrison's plan to utilise Australia's "big hearts" to fund the NDIS is under threat, with both Labor and the Greens raising concerns over the funding plan. Shares in the Big Four banks fell by between 2.1% and 3.6%.

At the time of writing, Macquarie, the other major bank affected by the new tax, had yet to release a statement. The budget papers expect wages to leap from two percent to 3.75 in 2020-21, while real GPD jumps from 1.75 percent to 3 percent in four years.

If the levy proceeds, it is likely to provoke a furious debate about who should bear its costs - customers or shareholders. Prime Minister Malcolm Turnbull said the banks can afford the impost and shouldn't pass it on to borrowers.

Scott Morrison has scoffed at suggestions the banks might be unhappy with the new levy. "They can absolutely afford this and it is fair that they make this contribution to bring the budget back to surplus".

But predictably, an Australian populace which has seen younger people priced out of the housing market and farmers driven off their land via mortgagee sales - all at a time when bank CEO salaries have hit stratospheric heights - doesn't need much encouragement to buy into the "bankers are bastards" motif that the Treasurer is mining.

Ducks exorcise their Game 7 demons and rally to defeat Oilers
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The government announcement follows financial misconduct scandals in recent years.

NAB chief executive Andrew Thorburn said it is not possible to impose a tax without an impact on people.

Adding that the banking sector is already the largest taxpayer in corporate Australia, and has "significantly strengthened its capital and liquidity base to ensure it is unquestionably strong and does not have to rely on implicit guarantees from government", Mr Elliott said that the bank believed the "initial public support for the tax will prove to be misplaced".

Hasan Tevfik at Credit Suisse forecast the levy should mean a 5 per cent earnings hit for these banks.

While the government continues to protect the banks from the ultimate probe, it demonstrably has little patience with them.

The measure, which also aims to help smaller rivals compete with the banking oligopoly, comes into effect July 1 and was introduced by a centre-right government that has been defending the banks against calls for a wide-ranging inquiry into their practices. North also argues that even with the tax, the big banks can still under-cut the smaller lenders, who have to pay more for money. The easiest way for them to do this would be to raise the variable rates on their mortgage offerings by around 0.15%-0.20%.

The levy, which will be annualised over the next four financial years, is expected to raise approximately $1.5 billion to $1.6 billion each year for four years, according to analysis by Morgan Stanley analysts.

Copyright 2015 All rights reserved. This material can't be published, transferred, copied or redistributed.


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