A tax you can bank on paying

AUSTRALIANS will pay most of the bank levy, either directly as customers of the bank, or indirectly through the charges of bank corporate customers, writes Terry McCrann.

Notorious depression-era bank robber Willie Sutton.

I WROTE on Budget night that Treasurer Scott Morrison had proved himself the “Willie Sutton” of treasurers.

In his first Budget last year, he targeted superannuation because “that’s where the money is”. This year it’s the banks because “that’s where the …” Sutton, of course, worked that one out nearly a century ago.

But as the Treasurer showed with the Medicare levy hike, it’s also you, where the money really is. Indeed, by 2020-21, the government will be getting more than a quarter of a trillion dollars — $253 billion to be exact — directly from personal income tax.

In truth though, every treasurer is a “Willie” because every single cent of the money the government gets — $386 billion last year, rising to a staggering $526 billion in five years’ time — ultimately comes from you. Because ultimately, that’s where “all the money is”.

On Thursday night, incidentally, Opposition Leader Bill Shorten announced he wanted to make Chris Bowen — who would be treasurer in the next Labor government — into a “Super Willie”: scooping up even more of your money.

It’s pretty obvious that most of the other taxes come directly out your pocket. Like the $60 billion paid in GST. Like the $35 billion paid in excise (38c a litre at the petrol pump, the huge amount on cigarettes). But even most of the $68 billion from company tax is really paid by you. Company tax is paid on company profits obviously. Most of those profits are earned by selling stuff to you.

The taxes paid on export profits, including foreign tourists in Australia, are the one big exception.

That’s why an increase in company tax will mostly really come from you. It also means that most of any cut in company tax will also ultimately flow to you — apart from any bit that flows to foreign shareholders.

That’s why you will pay most of the bank levy. You will pay it either directly as a customer of the bank, or indirectly through the charges of bank corporate customers.

There are no pots of gold sitting in bank vaults that are “owned by the bank”, and from which the levy can be paid. It will either come out of bank profits or from the flow of funds through the bank.

Now a legitimate case can be made for a levy as a “fee for service”, because banks are either explicitly guaranteed by the taxpayer — deposits up to $250,000 per bank; or implicitly so — they would always be bailed out.

This means they get to borrow their money cheaper than they would otherwise and so they can — perhaps — make a bigger profit.

The levy isn’t being justified on this basis though. Otherwise, apart from anything else it would also apply to the smaller banks.

If it had been done on that basis, it could also have been properly analysed and worked out with the banks, instead of being sprung on them late on Budget afternoon, “details to follow”. No, it’s directly targeting the big five and only the big five. It’s a tax hike, straight and simple, and only on them. Further, it will be permanent. And like any tax, it gets mostly paid by you. The money can’t come from anywhere or anyone else.

Now I have to say we should spare a thought for the Treasurer, as everyone wants a piece of his Budget; and he has to respond to those demands while juggling two very different realities.

The one is the “reality of politics”: as 2014 showed, there’s no point in bringing down a “fiscally pure” Budget if it dies a lonely death in the Senate.

It’s even more pointless if the Budget not only goes nowhere but you get turfed out at the next election because of it, as nearly happened last year.

The other reality being juggled, or not, is plain old reality. As former treasurer Peter Costello said last week, any tax is a bad tax. By that he meant, any and every tax drives a negative wedge into the economy.

But obviously, some tax is necessary: we have to pay for government. Ideally we should aim for the least bad, or at least lesser bad, taxes; and aim to keep them as low as possible. That’s where the “two realities” clash and why the Budget process — what’s in it for me? — has become so corrosive.

Ultimately the “real reality” will assert itself. History makes that blindingly clear. And it’s become more potent in the 24/7 real-time world of the 21st century. You might be able to buy your way to an election victory on a Saturday night, but you will still wake up to a “no-free lunch world” on the Sunday morning.

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Originally published as A tax you can bank on paying