The government’s levy on Australia’s five biggest banks has passed through federal Parliament.
Expected to raise $6.2 billion, it will come into effect on July 1 for ANZ, Westpac, NAB, CBA and Macquarie.
But just when it seemed another battle had been fought, if perhaps not completely won, in the ongoing power struggle between banks and government, a somewhat unexpected turn of events has occurred.
South Australia has announced it will impose its own bank levy and Western Australia may consider following suit. So more players are now entering this high-stakes game – but does the public really care who comes out on top?
The banks will always feel that they need to defend their interests. But this has led them into trouble. Far from garnering sympathy, their resistance to the levy has highlighted their political vulnerability. It has intensified the criticism and calls for increased regulation directed their way and the financial services sector more broadly since the global financial crisis hit home.
Some of the ill-will towards the banks simply comes from numbers. When the profits of big banks are splashed across front pages, and with the salaries of their executives just as easy to find, it’s hard to comprehend the fuss about a bank levy.
If the federal government levy takes $1.6 billion in its first year, out of a combined total of about $30 billion, does it really make any difference? There is a whiff of greed about this, whipped up by a media frenzy that people on the street are very happy to engage in.
Banks believe their responsibility to shareholders is about maximising returns.
But they also know that their profitability leads to stability in the finance sector. The banks’ wealth has certainly helped Australia through difficult times.
And, let’s face it, arguments against a bank levy remain quite hard to make. They may not be wrong, but they are more complex to make than arguments to impose a levy.
One of the prominent catch-cries from the banks has been that if you “tax” them, everyone suffers as they’ll have to pass on the cost. This may still prove to be true, but it further fuels the criticism of banks being “greedy”.
Macquarie Bank suggested they may offshore jobs – another argument that doesn’t get sympathy and which may, ultimately, backfire. This is a decision that Macquarie, with already significant offshore operations and a relatively small retail arm, would likely be considering irrespective of the levy issue. In other words, saying it would pursue this option as a result of the levy coming into force would be seen as using it as an excuse to do something that would make business (but not necessarily political) sense – which it had wanted to do anyway.
It may appear that it was all risk and no reward for the big banks – but the federal government has had to carefully weigh up its options, and their state or territory counterparts will have to do the same.
The very fact that bank levies are being put in place at all is a reflection on the banks’ impact on the economy. Their power enables them to influence the finance sector directly – in terms of interest rates and jobs.
But the banks’ influence also extends to investment.
Earlier this year, Westpac ruled out lending money to Adani’s Carmichael coal mine in north Queensland. The power of banks to influence projects like this clearly didn’t go unnoticed. The decision drew criticism from some quarters of government, a reaction which demonstrated that government takes the power of the banks very seriously.
When it comes to the federal levy however, the banks’ power has been nullified. They have effectively found themselves in a bilateral sandwich. They’ve had few friends on either side of the house and for both Labor and the Coalition – whether at state or federal level – this is a solution to a problem they both know they face.
In some ways this situation is only emphasised by the South Australian Labor government’s “me too” decision.
Even if the banks challenge this on a constitutional basis, it’s hard to imagine a scenario where the Wetherall government’s grab for cash won’t continue regardless.
So the high-stakes power struggle continues and it appears the big banks are on a hiding to nowhere.
And the public? They’ll likely sit back and watch.
Public opinion on this matter is at best ambivalent at worst a case of “they had it coming”. It is arguable as to whether this mood will change if the levies start to impact on their personal finances and wealth. Rather, it could lead to heightened criticism of the banks.
The banks are in a difficult no-win situation for now.
Professor David Grant is Pro Vice Chancellor (Business) at Griffith University
Article Source: The Sydney Morning Herald