The former Treasury secretary delivered a scathing review of the Turnbull Government’s new big bank tax, telling The Australian it should be examined to see how this move could impact the “proper regulation of the financial system”.
Dr Henry has also expressed concerns that the bank levy will weaken the industry, make Australia more vulnerable to a financial crisis in the future, and will see costs passed onto the consumer.
“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,” said Dr Henry.
“The government should have acted more responsibly and explained on Budget night that this tax will be borne by bank customers and/or shareholders.”
Opposition leader Bill Shorten is backing both sides of the scale, saying Labor will vote yes on the bank levy in Parliament, but is also supporting the NAB chairman’s call for a public inquiry.
The Labor Party has been calling for a Royal Commission into the banks for quite some time, wanting to find out the true scale of bank’s economic power.
Ken Henry has openly opposed the “excessive economic power of banks” in the past.
“The last thing anyone in the world wants is Mr Turnbull dreaming up a $6 billion tax on banks which gets passed to everyday Australians,” said Mr Shorten in Adelaide on Tuesday.
— Sky News Australia (@SkyNewsAust) May 15, 2017
Treasurer says banks should absorb the cost
Treasurer Scott Morrison told Radio 2ST presenter Chris Firth that Mr Henry would prefer to see everyday consumers paying taxes, rather than raising taxes on the banks.
“The banks are in a position to absorb this, they force small business to absorb costs every single day, [and] if it’s good enough for small businesses, it’s good enough for them,” said Mr Morrison.
Both the Treasurer and Prime Minister Malcolm Turnbull have dubbed the bank levy as “pretty conventional” and a fair contribution to budget repair, compared to levies of this kind in the UK.
Mr Turnbull told ABC Radio that as a chairman of one of the big banks, Dr Henry knows the banks can “well afford to pay this”.
“We are talking about a levy that would cost the big banks about $1.5 billion a year,” said Mr Turnbull.
“They have $33 billion of after tax profits.”
When asked about the difference between this tax on the banks and Labor’s former proposition to impose taxes on mining companies during the boom, Mr Turnbull said this is “very different”.
“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,” said the Prime Minister.
In a submission to the Treasury, the Commonwealth Bank said they were surprised to have been targeted in the Budget.
“We remain very concerned at the speed with which the levy is being introduced, and the significant risk of unintended consequences that could impact the stability and effectiveness of the banking system,” the bank said.
— Sky News Australia (@SkyNewsAust) May 11, 2017
The Federal Government plans to monitor the banks
This week the Treasurer ordered the Australian Competition and Consumer Commission (ACCC) regulator to investigate any rises to the big banks’ home loan rates.
Mr Morrison told The Daily Telegraph that the inquiry, to be undertaken until 30 June 2018, will force banks to explain publicly if they decide to increase any charges, fees, or interest rates.
This move follows a significant trend of the banks increasing rates beyond the Reserve Bank of Australia’s (RBA) cash rate over the past 2 years.
“Interest rates have been low for some time and banks have actually increased their mortgage rates,” Mr Morrison said.
“The banks should explain it and more importantly they should be honest about it.”
The RBA left the cash rate at the record low of 1.50% again this month, while the Big Four banks all have variable home loan rates or comparison rates above 5.00% p.a..
As part of plans to revolutionise Australia’s banking system, the Turnbull Government is determined to have more banking licenses to increase competition and weaken the power of the biggest five banks.
— Nine News Adelaide (@9NewsAdel) May 17, 2017