There has been much debate recently about the federal government?s proposed bank deposit levy, with a survey conducted by Essential Research on behalf of the Customer Owned Banking Association (COBA) finding that nearly 60% of Australians oppose the proposed levy. The consumer poll carried out by COBA found that Australians believe that the levy “will ultimately be a new tax on depositors”.
So what is the deposit levy?
Recently confirmed by Treasurer Joe Hockey, the bank deposit levy will be one of many savings measures found within the 2015 May federal budget. It?s a similar measure to one suggested by the Labor government in 2013, and the current incarnation of the tax will be by and large identical to what was suggested in 2013.
It is intended to be a 0.05% levy on every deposit of up to $250,000, and would be used to fund the present government guarantee on deposits up to $250,000 known as the Financial Claims Scheme. It would be expected to raise about $500 million a year, but as mentioned, many are concerned that it?s individuals who will end up paying the levy, rather than shareholders or banking institutions.
What is the deposit levy for?
The government has stated that the revenue gained from the levy will be placed in a “Financial Stability Fund”. This will provide insurance for banks against a collapse, without the banks having to hold additional capital. Currently the government has guaranteed deposits up to $250,000 in Authorised Deposit-taking Institutions (ADIs) such as your bank, building society or credit union. You can find out more about the financial claims scheme here. The new levy would be set aside to cover any losses under this scheme.
Reactions to the levy
ANZ chief executive Mike Smith has raised several concerns about the tax, saying that in regards to saver?s future actions, he “thinks it will further encourage inappropriate behaviour”.
He also questioned the fairness and timing of the tax, asking “with deposit rates where they are at the moment, why do you want to hit depositors again?”
“Why impose another tax on the savings of the elderly and retired? I don?t understand this. It?s not well thought-out,” he said.
Australian Bankers? Association chief Steven Munchenberg has more or less confirmed the worries of depositors, stating that the tax “is likely to be passed through substantially or fully to depositors”.
The CEO of the Customer Owned Banking Association (COBA), Mark Degotardi, notes that as per the findings in the COBA poll, older Australians in particular are concerned about the prospect of this new levy.
“Consumers are quite rightly concerned about a new tax on bank accounts where the tax burden is already quite punishing,” COBA CEO Mark Degotardi said. “The poll shows opposition to the levy rises with age and is particularly strong from Australians 55 and over, a group that is more focused on their savings and more likely to hold bank deposits. 84% of people aged 65+ believe they will be forced to pay this new tax.
“Consumers are saying no to this tax. They are not alone, with the independent FSI Report also against it. In a contest between banks, shareholders and customers, consumers fear it’s the average Australian saver who is likely to finish last and pay the price.”