The bank tax will be paid by real people, customers and shareholders

BANK bashing has never been more popular. Indeed, the Budget made it “official”, writes Terry McCrann.

Treasurer Scott Morrison during question time in parliament.

BANK bashing has never been more popular. Indeed, the Budget made it “official”.

Heck, the government thought that not only could it “get away” with whacking the banks with a “great big new tax” to raise $1.5 billion a year, and growing, every year, forever; but that it would actually be a vote winner.

It’s also never been more an exercise in self-harm. You “hurt” the banks and you hurt not just some but all Australians.

At the most modest level, every Australian, whether they know it or not, whether they want to or not, has a stake in the banks through their superannuation.

The bank shares are easily the biggest component of the stock exchange. The bank shares have also generated the most reliable increases in value; they’ve also provided the most secure level of and increases in dividends.

At the other extreme, when banks get into trouble you end up paying for it. You pay for it either directly as a shareholder, direct or indirect; but as we saw after the GFC in other countries, you can also end up paying billions of dollars as a taxpayer to bail them out.

As has been said many times before, there is one thing much worse than a profitable bank — an unprofitable one.

Now this is most certainly not an argument to let them “do want they want”; clearly they need to be kept accountable and if the market won’t do that, regulation and appropriate interventions are a must.

But, critically, it should be with the objective of making them work better and not with the primary objective of financial punishment: because you should never lose sight of the unavoidable reality that if you “hurt a bank”, you actually hurt its customers or its shareholders. And if you take “the hurt” too far, you end up hurting taxpayers as well.

There are no secret pots of gold hidden under the desks of the various CEOs which can be tapped to pay fines — or taxes. Now there used to be — they used to have “hidden reserves” — but they’ve long been revealed and folded into the balance sheet.

Every dollar that comes out of a bank has to come from a customer or one dollar less will be left for shareholders.

Sure, “some” dollars could come from the high salaries of senior executives, but frankly that would be only token at best and you’d soon run out of such dollars, and probably executives to boot.

The bank shares are easily the biggest component of the stock exchange.

Now in working out where the $6.2 billion is to be raised — estimated, to be raised — from the big bank levy over the next four years, Treasury made an interesting assumption.

This was that the money would come around half from bank customers and half from bank shareholders. In my judgment that would be a pretty reasonable outcome, both in terms of the broad point I made above and what’s “fair”.

We will only really find out as time unfolds; both in terms of what banks can do to (legitimately) minimise the levy; and what they are actually able to do in the market — especially when they are borrowing overseas.

Another factor is what happens to our triple-A credit rating. I believe we will inevitably lose it (and I am certainly not alone in that belief) — most likely after the 2018 Budget, if we haven’t lost it after the midyear Budget update this coming December.

If we lose it, the banks would also be downgraded; they would have to pay slightly more to borrow in global markets; they wouldn’t be able to “pass on the levy” to those global lenders.

So, by the bye, even more of the levy would be paid by local customers (or shareholders) — just when they were also going to have to pay for the downgrade!

I don’t have an opinion either way on the levy itself. My focus is explaining that it has to come from real people, like indeed every cent of every dollar of every tax. That it can’t come from this semi-mythical entity: “The Bank.”

Some of the most virulent attacks on the levy, including from the banks themselves, are overwrought, if understandable.

Their main fear is that it will be permanent: sorry to tell you, yes it will. First, because the Budget just ain’t going to get back into surplus. Second, because if it did, there are too many other more popular tax cuts ahead of cutting or ending the levy.

They are also, reasonably, worried that it could be increased.

It’s sort of like a narrowly focused version of the GST.

While raising the GST from 10 to, say, 15 per cent would be political poison, clicking up the bank levy from 6 to 8 points would be all too easy.

At least let’s ensure they would have to do it by legislation.

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Originally published as The bank tax will be paid by real people, customers and shareholders