The big taxing Turnbull government has already cost bank investors an estimated $14 billion in lost value for the big four banks’ share prices – which is more than twice the $6.2 billion a new tax will collect.
Some analysts compared the tax to the carbon and mining taxes introduced by the former Labor Government in their impact on the market value of their targets – banks.
Treasurer Scott Morrison has opted for the same system used in the United Kingdom. This is a tax on liabilities for banks which have aggregate liabilities in excess of £20 billion. The UK tax is being phased out from 0.21% to zero over the next five years.
The Treasurer said the Government will introduce a major bank levy of 6 basis points on banks with liabilities above $100 billion. “This represents a fair contribution to the community from our major banks, is consistent with other advanced countries and helps foster competition from smaller banks,” he said.
That equates to $6.2 billion the big five banks (including Macquarie) banking sector over the next four years. The Treasurer has exempted customer deposits of less than $250,000, as well as superannuation and insurance funds.
“Unlike the previous bank deposit tax, this is specifically not a levy on pensioners’ and others’ ordinary deposit accounts, nor is it on home loans,” Mr Morrison said.
But they will pay the cost of the tax by way of higher fees or charges and/or high interest rates on their financial products such as home loans and credit cards.
Rumours of the tax saw losses in the big four banks accelerate yesterday,, with CBA down 3.8%, on track for its biggest daily loss since February last year, Westpac off 3.5%, ANZ losing 2.6% and NAB down 2%. Macquarie Group shares fell 2% as well and Bendigo Bank shares lost 2.5%.
Brokers said the losses accelerated slightly in the afternoon as the rumoured tax became accepted fact.
Since May 1, (the day before the ANZ reported) ANZ – which also went ex-dividend on Monday – has lost 11.3%, Westpac has lost 6.6%, CBA has shed 6.4%, and NAB has dropped nearly 5% as local and global investors took profits and described the trio of interims and the CBA update as underwhelming.
Altogether, the big four lost around $14 billion in value yesterday and more than $30 billion since the sell-off started a week ago yesterday (Tuesday) after the ANZ underwhelming earnings (which did get a positive reaction to start with). ANZ shares peaked at $32.95 on May 1, and have been falling ever since (the result was announced on May 2).
The ANZ, NAB and Westpac Banking Corp have announced half year profits in recent days totalling $15.7 billion. The Commonwealth yesterday revealed a cash profit for the third quarter of $2.4 billion, up from $2.3 billion a year ago.
“The Australian banks have a very good track record of passing on higher funding costs, credit risks and other headwinds to customers,” UBS bank analyst Jonathan Mott said in a note to clients late yesterday.
“Although there is likely to be political pressure and further calls for a Royal Commission, we would expect the banks to pass a potential transaction tax onto borrowers. We believe the easiest way for the Banks to achieve this would be to reprice their mortgage books."
News of the tax came a day after Mr Morrison announced a productivity Commission inquiry into competition in the financial system – centred on the big four banks. That report will be delivered by mid 2018.
Bank executives will face tough penalties for misconduct under a new Banking Executive Accountability Regime.
"If in breach, they can be deregistered and disqualified from holding executive positions, and be stripped of their significant bonuses," the Treasurer said. "Banks will also be held to account if they try and hide misconduct by executives with new mandatory reporting requirements."
The Treasurer has introduced a new federal body called the Australian Financial Complaints Authority, which he described as a "one stop shop" for customer complaints.
