Labor considers higher levy for big four banks

Labor has declared it could consider ratcheting up the government’s $6.2bn major bank levy.

Shadow Treasurer Jim Chalmers. Picture: AAP

Labor has declared it could consider ratcheting up the government’s $6.2bn major bank levy in a bid to level the playing field ­between the big four banks and smaller lenders amid criticism of the banks’ refusal to pass on last week’s Reserve Bank rate cut.

Putting a review of the bank levy on the table was one of several ideas floated by opposition Treasury spokesman Jim Chalmers on Sunday to inject competition into the banking sector.

Also proposed was giving the competition watchdog the green light for another inquiry into Australia’s major banks, slugging banks to pay for financial regulators and reviving the opposition’s election policy to slap a $160m ­annual levy on the big four to make the system fairer for consumers.

Dr Chalmers also said Scott Morrison should legislate an immediate increase to Newstart as part of “responsible and affordable” fiscal stimulus to reignite weakening economic growth.

He also called for another cut to deeming rates to help reduce extra taxes on retirees.

Dr Chalmers said Labor should consider whether to increase the 0.06 per cent tax on the five largest banks in Australia as part of a raft of packages to increase competition in the banking sector, which is dominated by Commonwealth Bank, Westpac, National Australia Bank and ANZ who together control 80 per cent of the market.

Any increase to the rate would result in billions of extra tax revenue over the forward estimates.

“We need to have a broad conversation about how we make the banking system more competitive,” Dr Chalmers said on Sky News.

“All of those options should ­obviously be on the table. I’m not favouring one solution or another at this point. The Australian ­people are up for a more competitive banking system.”

Due to the implicit government guarantee enjoyed by the big four and Macquarie Group, because they are considered too large to be allowed to collapse, investors charge less for funding those banks than for smaller lenders.

That gives the big banks access to wholesale funding about 20 basis points cheaper than their smaller rivals. The Turnbull government in 2017 established the major bank levy, at a rate of six basis points on bank assets, which is expected to raise more than $6bn over four years.

The Greens have proposed ­extending this to 20 basis points to account for the benefit received by the major banks but Labor, before the election, did not commit to any review of the rate.

The commentary comes after a heated week in the sector after the banks were accused by the Prime Minister of “profiteering” from the central bank’s third official rate cut this year.

The big four as a group have passed on a little more than 14 basis points of the RBA’s 25-basis-points cut, citing pressure on the margin they earn on loans after funding costs, and an inability to reduce already low deposit rates by the full amount. The RBA cut interest rates to a record low of 0.75 per cent last week in a bid to reverse rising unemployment and kickstart the national economy.

Dr Chalmers said the government needed to embark on ­“responsible and affordable stimulus” and argued it was possible to deliver a budget surplus this financial year while also encouraging the economy to grow: “The interest rates cuts have been helpful but nowhere near helpful enough. Business investment is the lowest its been since the 1990s recession.”

He said the first real increase to Newstart in decades — most likely an extra $75 a week — would stimulate the economy.