Big Banks Front Senate Inquiry Over New Levy

On Friday, Australia’s biggest five banks were asked to appear at a Senate inquiry in Canberra to face questions over the Federal Government’s controversial $6.2 billion bank levy introduced in the 2017 Budget.

senate inquiry into big banks

In a last-ditch plea to the Senate Economics Legislation Committee, representatives from Commonwealth Bank, Westpac, ANZ, NAB, and Macquarie appeared in Parliament seeking to amend the Major Bank Levy Bill, if not head it off altogether.

The big banks say that when the Federal Budget returns to surplus there should be a sunset clause on the legislation, arguing major lenders will face unlimited charges unless a specific time frame is introduced.

The banks have also indicated that the levy should not apply to offshore banks and subsidiaries, and that if a banking institution is under financial stress there should be a mechanism to suspend the levy, allowing for banks to survive through tough times.

In a submission to the inquiry, Australian Bankers’ Association (ABA) CEO Anna Bligh voiced her concerns about the effect the levy will have on the five big banks, saying consultation for the levy has been “rushed and inadequate”.

“The imposition of a new levy on the five largest banks, with no sunset clause, leaves open the possibility that its base will be broadened and the rate lifted by future governments, thereby increasing the impact and possibly extending to other banks,” said Ms Bligh.

The ABA leader also said the tax on banks “cannot be ‘absorbed’ as some suggest”.

“It will have to be borne by savers, borrowers, shareholders, employees, suppliers, or a combination of all, and the public is entitled to know this.”

Treasurer Scott Morrison rejected the proposal for a sunset clause, saying the big bank levy is not a temporary measure.

“When we return to balance, as we’re projected to do in 2021, the bills don’t stop there,” Mr Morrison told reporters in Sydney.

“That’s why the tax doesn’t stop then.

“We need to get back into balance, and stay in balance.”

As well as the ABA, the Commonwealth Bank also expressed “significant concerns” about the Bill, demanding clarity around the “true objective” of the bank levy.

“The levy creates disincentives for banks to build liquidity and funding buffers, a critical part of being ‘unquestionably strong’,” said CEO Ian Narev in a submission to the inquiry.

The Customer Owned Banking Association (COBA) told the Senate inquiry committee that they support the bank levy as it will “contribute to a more level playing field in the banking market”.

“It comes as no surprise we strongly support measures to promote competition in banking because they are very clearly needed,” said COBA CEO Mark Degotardi.

Macquarie argues it is not a “major bank”

While many of the major banks contend that the Bill is flawed, the Macquarie Group has taken an even more extreme position on the $6.2 billion bank levy, arguing they should be entirely exempt from the tax.

In the second paragraph of a submission to the Senate inquiry, detailing the impact of the levy on Macquarie, the bank’s CFO Patrick Upfold argues that “Macquarie Bank is not a ‘major bank'”.

Macquarie also said it is not even in the top five for home lending, with its 2% market share in domestic mortgages actually putting the bank in eighth position, ranking behind ING, Suncorp, and Bendigo Bank.

The submission then goes on to say that the bank “is a predominantly wholesale business and exporter of financial services” which brings “significant benefits to the Australian economy”.

If it is subject to the bank levy, Macquarie says this would equate to a reduction in its ability to compete in offshore markets, and “effectively act as a tax on exports”.

Banking commission of inquiry now unlikely to be established

On Thursday a private bill to establish a commission of inquiry into the big banks and financial sector passed the Senate, but ultimately failed to progress.

The bill was sponsored by the Greens and crossbenchers – including the Nick Xenophon Team, Derryn Hinch, Jacqui Lambie, and One Nation – with the support of Labor.

After going to the lower house on Thursday afternoon, the bill did not progress to a debate, with the vote tied at 70-70.

Unless two Coalition MPs agree to cross the floor, the Opposition and crossbenchers will be two votes short of the 76 needed to force a vote on legislation for a commission of inquiry.

Nationals MP George Christensen sided with the government in the vote, having previously indicated he would cross the floor and back a commission of inquiry into the banks.

The Turnbull Government has so far resisted a royal commission or a commission of inquiry, instead introducing the big bank levy, which has now passed Parliament’s lower house with the support of Labor.

Image credit: iStockphoto | CraigRJD

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