Federal Budget 2017: Malcolm Turnbull and Scott Morrison versus the big banks

EXCLUSIVE: Malcolm Turnbull has urged Australians to walk away from the big banks if they jack up interest rates and fees to make customers pay their surprise new $6.2 billion tax bill.

• Industry leaders’ thumbs up to Budget 2017
• Federal Budget 2017: You’ll pay for $6b tax hit, bank chiefs warn

PRIME Minister Malcolm Turnbull has urged Australians to take their business away from the big banks if they punish customers with higher interest rates and fees by passing on the new $6.2 billion industry tax.

An all-out war has erupted between the Turnbull Government and the banking sector, with chief executives furiously rejecting Mr Turnbull’s demand they absorb the $1.2 billion annual tax.

Instead, the chief executives of Australia’s most profitable banks said they would pass the cost directly onto consumers. They even warned yesterday that the ­retirement savings of elderly Australians had already taken a hit, with bank shares plummeting $14 billion on Tuesday.

The Prime Minister Malcolm Turnbull with Treasurer Scott Morrison have declared war on banks doing passing on higher interest rates and fees to customers. Picture: Kym Smith

Speaking to The Daily Telegraph, Mr Turnbull said he had directed the consumer watchdog to keep a “very close eye on how the banks respond”.

Federal Budget 2017: Deficit levy ‘a tax cut for millionaires’

“Most banks are unaffected so if the big banks do the wrong thing by their customers, then their customers would be entitled to take their business elsewhere,” he said.

An animated Treasurer's Scott Morrison used his Press Club address to warn the big four of a savage backlash if the tax is passed on. Picture Gary Ramage

Mr Morrison used the bank attack, lifted from Labor, as a key weapon in his Budget sell, mocking the unpopularity of the big four. Picture: AAP

“It’s not a levy on everyday deposits or mortgages — it’s a levy on liabilities. There is no reason for these very big and very profitable banks to punish their customers. Competition is a powerful weapon.”

Only the biggest and most profitable banks will be affected by the levy, Mr Turnbull said, adding they could afford to contribute to budget repair.

“We urge the banks not to put their profits ahead of their customers,” he said.

“These banks benefit the most from the stability of our financial system so it is only fair they make a contribution to the community and to budget repair.”

THE PLAN

The Big Four

The major banks will pay an extra $6.2 billion in taxes from July 1 over four years to pay for a crackdown on customer rip-offs.

The bankers

As part of the plan the Australian Prudential Regulation Authority would be able to vet bank executives' backgrounds and incentives they are paid.

It would also have the power to remove bad executives.

Fines

The regulator could fine employers up to $200 million if their staff are caught ripping off customers.

Bank executives, who will today meet with Treasury to discuss the levy, have warned they will pass its cost onto shareholders via reduced profits, savers through higher fees and borrowers through higher interest rates.

“There are only three options for banks, it will either be paid for by shareholders, savers or borrowers,” Australian Bankers’ Association chief executive Anna Bligh said. “There is no such thing as a tax that is absorbed.”

Westpac Group chief executive Brian Hartzer said the bank tax would hit Australians’ retirement savings and hurt bank customers.

“This levy is a stealth tax on their life savings, the shares in their superannuation accounts and it will make Australia’s banks less competitive,” he said.

“Westpac already pays over 30 per cent of its profits in tax and this will now ­increase even further.”

Commonwealth Bank chief executive Ian Narev criticised the lack of consultation by the Government and is understood to have only learnt of it when news broke on Sky Business on Budget eve. The leak led to a $14 billion fall in share price and sparked calls for an ­inquiry by Senator Derryn Hinch.

“As every business owner or employee knows, every extra cost needs to be borne by customers or shareholders, or a combination of both,” Mr Narev said.

“Once we have received all the details on the new tax, we will do our best to strike the right balance to ensure we continue to enhance the ­financial wellbeing of people, businesses and communities.”

Westpac Group chief executive Brian Hartzer warned the retirement savings of everday Australians were under attack from the tax.

ANZ said in a statement that at this stage it was too early to provide a definitive estimate of the financial ­impact to ANZ and an analysis was being undertaken.

As Treasurer Scott Morrison embarked on his budget sell, his message on the National Disability Insur-ance Scheme was especially close to home.

At the National Press Club, he introduced his brother-in-law Garry Webber who has multiple sclerosis.

Mr Morrison said the banks, which reported $30 billion in profits last year, could well afford the levy on liabilities over $100 billion, which will be introduced to Parliament in the next month, to take effect from July 1.

Commonwealth Bank CEO Ian Narev said the government had failed to consult properly with the big four banks.

Speaking in Canberra, Ms Bligh criticised Mr Morrison for making a blatant political decision that banks were an easy target.

“It is naive and misguided and has already sent the wrong signals to global financial markets about the strength and stability of our banking sector,” she said.

“Market speculation about this new tax just today stripped around $14 billion from the value of life savings and superannuation accounts of ordinary Australians after bank shares plummeted.”

The Daily Telegraph understands the banks can write the levy off as a tax deduction.

The major bank levy will affect banks with licensed ­entity liabilities of at least $100 billion from 1 July 2017.

Originally published as Federal Budget 2017: Malcolm Turnbull and Scott Morrison versus the big banks