Ken Henry urges bank levy inquiry

Malcolm Turnbull has rejected NAB chairman Ken Henry’s claim bank levy would have to be passed on to customers.

NAB chairman and former Treasury secretary Ken Henry in Sydney. Picture: Hollie Adams

Treasurer Scott Morrison says he is unsurprised that National Australia Bank chairman Ken Henry opposes the Turnbull government’s bank levy, writes Rachel Baxendale.

Mr Morrison also attacked the former Treasury secretary’s record as an advocate for bank deposit and mining taxes.

“Big bank boss Ken Henry says don’t have us pay more tax. It is hardly a surprising headline,” Mr Morrison said

“Ken Henry is welcome to his view, but Australians know the very modest levy we put in place on the banks is a fair levy.

“It will help us pay for hospitals and schools and pensions, not just for the next few years but the future.”

Mr Morrison said that when Dr Henry was Treasury secretary, he advocated a tax on bank deposits.

“We didn’t think that was a good idea,” he said.

“Nor did we think his suggestion about a mining tax was a good idea. It didn’t raise any money.”

“I am not surprised that big banks are trying to delay the introduction of a tax on them. That is to be expected. I am sure Ken will continue to talk his book, but Australians know that this is a fair measure.”

Malcolm Turnbull alos says Dr Henry is “talking his own book” in opposing the government’s bank levy, and denied the WA Nationals’ accusations that he is a “hypocrite” for opposing their mining tax but proposing a bank tax which is almost identical in principle.

The Prime Minister said Mr Henry was speaking as the chairman of a bank in warning that the bank levy would have to be passed on to customers.

• Full transcript: David Crowe’s interview with Ken Henry

“He knows as well as I do that the banks can well afford to pay this,” Mr Turnbull ABC radio in Adelaide.

“We’re talking about a levy that would cost the big banks about $1.5.bn a year. They have $33bn of after tax profits. They are the most profitable banks in the world.”

Mr Turnbull said the bank levy was “very different” from Labor’s mining tax, which Mr Henry, a former Treasury secretary, played a role in formulating.

“This is not a super profits tax. This is a levy on liabilities which reflects the advantage that is conferred on the big banks by the community, by Australia, our strong financial stability, underpinned by the commitment of the government to maintaining that,” he said.

“It is a different context. Mining companies pay royalties. They pay royalties for the minerals they extract and state governments are able to and from time to time do increase or change royalties, but here what we have is a need to repair the budget, the need to raise revenue and the banks do get a very distinct advantage from the support of our very stable financial system and the support of government, so it is fair for them to make a contribution, as indeed banks do in many other parts of the world including the United Kingdom and other countries, including in Europe.”

In another interview on Adelaide radio 5AA, Mr Turnbull said he could understand that Mr Henry doesn’t want his bank to have to pay the tax.

“But the tax will come into operation on the First of July,” Mr Turnbull said.

“There will be plenty of opportunity for the parliament to discuss it. We’ve got Senate Estimates next week, where it’ll no doubt be the subject of questioning.

“Dr Henry understands the process very well, but he should also understand as a former secretary of the Treasury, that my obligation and my responsibility as Prime Minister is to ensure that the budget is brought back into balance, and that is what we are doing.

“The banks are free to price their products as they wish, but you’ve got to remember this is a 0.06 per cent levy, so it is much smaller, for example, than an interest rate, typical interest rate movement which is 25 basis points, so it is a large amount of money in aggregate, but relative to the banks’ business, relative to their profits it is much smaller.”

Turnbull “certainly not” a hypocrite

WA Nationals leader Mia Davies meanwhile accused Mr Turnbull of hypocrisy, saying the bank levy is almost identical in principle to her party’s mining tax which Mr Turnbull rejected ahead of the recent state election.

At the time, Mr Turnbull condemned the tax on mining giants Rio Tinto and BHP because it was targeted at individual companies.

“We view with great concern, as does the whole business community, the imposition of substantially increased taxes on particular nominated companies,” Mr Turnbull said during the campaign.

The government’s bank levy, announced in last week’s budget, is intended to raise $1.5bn a year from the big four retail banks and Macquarie bank.

“The hypocrisy of saying, ‘no we don’t think you should be asking the miners in Western Australia to pay their fair share’, but then having the same rationale for slamming it onto the banks, we find a little bit hard to swallow,” Ms Davies told ABC radio.

Mr Turnbull said he was “certainly not” a hypocrite.

“What we’re proposing, what is being presented in the budget is a levy that represents a fair contribution from the big banks which are among the most profitable banks in the world, to budget repair,” he told ABC radio in Adelaide.

“This bank levy is pretty conventional. I can see there’s obviously complaints about it from the big banks, you’d expect that, but it’s very similar to levies of this kind in other countries, including of course the United Kingdom.”

“This is a situation where you have big banks have the benefit, very substantial financial and commercial benefit, from the security that is provided by the very stable financial system in Australia, backed up by government regulation and leadership, and so it is fair that they make a contribution to budget repair and I think most Australians would agree with that.”

Ms Davies said the Turnbull governments argument that the banks had been the beneficiaries of government support applied equally to the mining companies.

“Here in Western Australia the two big mining companies have been massive beneficiaries of government support,” she said.

“Over the last ten years we’ve had 500,000 people move to this state.

“The state government has had to accommodate those people that have largely moved in response to jobs being created as a part of that mining boom, and there’s been significant investment in water and power infrastructure, support over many years through the state agreements.”

Ms Davies said the miners had waged and enormously effective and expensive campaign against her party’s levy, and she expected the banks would do the same.

“In our leaders’ seat in the Pilbara there was enormous amounts spent, and we are seriously concerned about the impact that some businesses have had on the outcome of the election,” she said.

“(The miners) were most definitely nervous about what was happening in Western Australia, and they have every right to be nervous when they cannot demonstrate that they are delivering a fair share for the people of Western Australia or Australia, and you do have to ask the question as to why the two big mining companies received the protection from our federal colleagues, both Labor and Liberal, and the banks don’t seem to be enjoying the same.”

Earlier, Trade Minister Steve Ciobo said Dr Henry is wrong to warn that the bank levy will have to be passed on to customers to replace funds “confiscated” by Canberra.

Mr Ciobo made reference to Mr Henry’s role in designing Labor’s mining tax in dismissing his criticisms of the bank levy.

“Ken Henry is certainly well-intentioned, however, he’s also not infallible,” Mr Ciobo told ABC radio.

“Ken Henry of course designed the first iteration of the mining tax, which would have seen taxpayers refunding coal miners and iron ore miners for losses in recent years, so I think that there’s some policy work historically that hasn’t been ideal.”

Mr Ciobo said the government had to find realistic ways of balancing the budget.

“We have to be pragmatic about the way in which we address the effort required around fiscal consolidation for Australia, but we’ve had to do that through a number of different alternatives because we’ve had a Senate that has typically been saying no when it comes to savings initiatives that the Coalition’s tried to put in place to instil better fiscal discipline,” he said.

“What we’re talking about here is a very modest contribution from Australia’s big five banks, the four majors everyone of course knows about at the retail level, plus Macquarie Bank.”

Mr Ciobo denied that the banks would be dipping into reserves which would be crucial in the event of a financial crisis.

“It’s not true, and the reason it’s not true is because the banks, in particular of course the four major banks, have very substantial returns,” he said.

“They have a social licence that’s granted to them on behalf of the Australian people, and we’re requiring them to make a modest contribution towards the ongoing effort that Australia needs to make in order to return to a budget position of surplus and strength, so it’s simply incorrect to make the suggestion that there is not enough buffer for Australia’s four major retail banks plus Macquarie to be able to absorb this cost.”

Henry urges bank tax inquiry

Dr Henry had demanded a full public inquiry into the federal government’s $6.2 billion bank levy, as he warns the shock tax will have to be passed on to customers to replace funds “confiscated” by Canberra, writes David Crowe.

The former Treasury boss ­accused Malcolm Turnbull and Scott Morrison of misleading ­voters by pretending customers could escape the cost of their levy, saying they were taking tax policy “right back to the 1970s” with a rushed idea that would damage the economy.

Dr Henry told The Australian the policy, which could cost NAB more than $300 million a year, would wreck efforts to strengthen the industry for a future crisis ­because the tax take would ruin months of work by the prudential regulator to make sure banks had “unquestionably strong” reserves.

“The government should have acted more responsibly and ­explained on budget night that this tax will be borne by bank customers and/or shareholders,” Dr Henry said.

“It should not have pretended that there’s some magic pudding sitting somewhere that can generate additional funds at no cost to customers or shareholders.”

ANZ Bank chief executive Shayne Elliott said yesterday Canberra’s insistence that banks ­absorb the new tax was “nonsense” and he urged the industry to “squawk” loudly and explain the implications of the tax for shareholders, customers and bank staff.

“Without action on our part, this is a tax on you — our shareholders,” Mr Elliott told the Australian Shareholders Association.

Opening a new front in the tax fight, Dr Henry, a top adviser to Labor and Coalition governments over three decades before chairing NAB, revealed the Australian Prudential Regulation Authority had told banks their retained earnings would be enough to hit a new target that forced them to increase their capital reserves.

“The government has just walked straight into that and said ‘we’re going to have those retained earnings to fill a hole in our budget’ so I cannot believe the government consulted with APRA before making this announcement,” he said. “I reckon this tax — because it’s such bad tax policy but also ­because of the way it intrudes into the proper regulation of the financial system — should be put before an open public inquiry.

“There should be an open public inquiry because the tax lacks policy coherence both in respect of tax policy and in respect of financial system regulation.”

The call for an inquiry into the tax contrasts with the banks’ steadfast resistance to Labor’s urging for a royal commission into the sector.

In a parallel with the sudden move on the banks, Dr Henry chaired the tax review that led Kevin Rudd and Wayne Swan to unveil a resources super-profits tax in 2010, antagonising the mining industry.

Dr Henry yesterday stood by the original RSPT on the grounds it aimed to replace state royalties with a simpler national system like the GST, a big difference with the bank levy.

“Australia would be in a better place today had the resources super-profits tax, as first designed and as recommended in the review, actually been legislated,” Dr Henry said. “The cyclical performance of the Australian economy would have been much better than it’s turned out to be. Western Australia today would not be such a weak place had that tax applied.

“The most important thing is this: the original design of that tax was that it was going to replace all of the state-based royalties. It was the same rationale that was used when the GST was introduced … I don’t see any of that in this bank levy. Quite the opposite.”

While Dr Henry said the resources tax would have helped Australia, he argued the bank levy would be bad for bank shareholders and customers and therefore the economy.

“This levy will be borne by customers right across the economy — retail customers and business customers — and there certainly will be an economic impact,” he said. “No question.”

Dr Henry’s argument on the bank tax builds pressure on the Prime Minister and the Treasurer to explain what advice they took from the regulator to design a levy that is being justified in part as a fee for the “implicit” government guarantee over bank deposits.

The banks are preparing to argue that paying the levy in ­return for the implied guarantee should lead to a reduction in their capital requirements because both policies serve the same purpose.

Dr Henry warned the government was trying to have the same goal ­“double-funded” in a way that was at odds with its own regulator.

The banks have been in talks with APRA for months over the need to increase capital ­reserves and they expected to use “organic” growth in profits to meet demands. “This organic capital growth is now being confiscated by the government,” Dr Henry said.

The dramatic rebuke to the government comes as other bank leaders issue a barrage of complaints over the policy. Westpac attacked the “rush” to apply the tax on July 1 and the Commonwealth Bank pushed back against a timetable that gave the banks 24 hours to respond to draft legislation on Wednesday.

The industry called for foreign banks to pay the levy and for a sunset clause to ensure the tax would end when the budget returned to surplus.

While the banks have reserved a decision on whether to wage an advertising campaign against the levy, their complaints provide ammunition to Labor to interrogate the government on how the levy was designed and whether it consulted all the ­regulators.

Dr Henry helped John Howard and Peter Costello implement tax reform in 1999 when the GST replaced a list of “iniquitous” taxes including wholesale sales tax and others that dated back to the era before 1983 when Bob Hawke ­became prime minister.

“Until this budget I had thought that these things were gone forever, that no future Australian government would go back to those sorts of taxes,” he said.

“That is, I thought that by the time we’d introduced the GST on 1 July 2000, the policy mentality that had given us the wholesale sales tax, financial institutions duty, bank accounts debits tax — I thought that mentality was dead and buried. And it turns out it’s not.

“It turns out the government has gone right back to the 1970s and the very early 1980s — that is, pre-Hawke — in designing tax policy. And I find that quite ­extraordinary.”

Dr Henry dismissed arguments that the new impost amounted to only 5 per cent of the industry’s collective profits. NAB paid $2.6bn in tax last year, about 28 per cent of its $8.9bn income.

Dr Henry said the NAB’s share of the annual $1.5bn levy would be between one fifth and one quarter of the total, in line with its size among the big four banks and given Macquarie Bank would pay a smaller share.

In a worrying statement for the bank’s 570,000 direct shareholders, Dr Henry raised the ­prospect of asking owners to contribute more capital or sacrifice dividends to fill the funding gap.

“If, given this levy, it can’t be done organically then the banks will have to go to shareholders,” he said. Industry anger is compounded by concern at proposed rules to force banks to “claw back” bonuses from executives held responsible for poor treatment of customers.

“Obviously I do acknowledge that the banks have not always behaved in a way that the banks should have behaved — that there has not always been sufficient focus on the interests of the customers,” Dr Henry said. “But these arrangements that were announced in the budget don’t go anywhere near that.”