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Issue #1784      July 5, 2017


When the government announced a levy on the big four banks plus the Macquarie Bank in the May budget, it came as a shock to them. Not so much because of the dollars involved, but the audacity of the government to dare to touch them and to do so without prior consultation or warning!

The all-powerful bank lobby was caught on the back foot and despite all its protestations and a media campaign, was unable to stop the levy. What was perhaps even more surprising to them was that it came from the Liberal Party.

The Australian Bankers Association accused the government of unfairly targeting the big four – the ANZ, Westpac, NAB and Commonwealth.

The banks’ media lackeys joined the fray warning that it would send the “markets” the wrong message about Australia. In this instance the “markets” being referred to were foreign investors who might look elsewhere to park their capital.

Just as the furore appeared to be dying down, the South Australian (SA) Labor government announced a similar tax on bank liabilities in its budget. (It would be based on the size of SA’s economy as a percentage of Australia’s GDP.)

This brought more howling from the finance sector and corporate media: “Where will it stop?” There were reports that the West Australian government was also considering a levy.

So, it was time to make an example of South Australia.

Westpac’s BankSA announced that it had put on hold plans to open a new automated processing centre which it claims would have created 150 jobs.

The ANZ warned that the levy could “dramatically diminish” the economic prospects of the state. This could prove to be true if the banks pull the plug on SA by such means as selling off government bonds, not buying new issues and creating a credit squeeze on new investments.

The monopoly powers of the big banks are such that they can undermine any government through the flight of capital, by disrupting the mortgage market, and dictating what private investments go ahead.

Too little

After years of profit-gouging and numerous scandals involving the loss of millions of dollars of people’s savings, the federal government still refuses to call a Royal Commission into the banks and insurance companies.

The federal 0.015 percent quarterly levy (0.06 percent per annum) on certain bank liabilities will hardly touch their super profits. Treasurer Scott Morrison claims that it will raise $6.2 billion over the coming four years, a figure disputed by the banks as being an over-estimation. Apart from its impact on the budget deficit, the government hopes it will serve as a diversion from calls for a Royal Commission into the banks.

Federal Parliament passed the levy into law on June 19. As from July 1, this year, deposit-taking institutions with more than $100 billion in liabilities will be required to pay the levy. The levy does not apply to everyday savings or mortgages. Nor does it apply to superannuation funds or insurance companies.

The levy is a small step in the right direction. It falls far short of introducing a progressive taxation regime with higher corporate profits taxed at higher marginal rates.

The Treasurer claims: “By reducing Australia’s largest banks’ funding cost advantages, the levy will also contribute to a more level playing field for smaller banks and non-bank competitors.”

Too big to fail

The Australian government ensured the security and stability of the big banks during the global financial crisis and subsequent recession with its guarantees. The Reserve Bank found this implicit government subsidy to be worth almost $4 billion a year.

It was the usual story of private profits but social losses if any bank were to crash. This guarantee is believed to have played a critical role in the functioning of the big banks during the financial crisis and subsequent recession.

The smaller banks were not given such guarantees, putting them at a disadvantage. They also have to meet tougher requirements in relation to the reserves they hold.

Obscene profits

The five banks affected by the levy made record profits totalling over $32 billion during 2017. The levy can hardly be described as a king hit.

The finance sector is the most profitable as well as powerful “industry” in the Australian economy, outdoing mining, construction and agriculture.

According to the Australian Trade and Investment Commission’s report Why Australia Benchmark Report 2017, the finance sector contributed 9.4 percent of all “gross value added” to the Australian economy in 2016.

“Gross value added” is another term for wealth created, except in the case of financial institutions they do not create wealth. What it means is that almost one in ten dollars of wealth created by the labour of workers across other sectors of the economy finishes up in the coffers of the big banks and insurance companies.

They are like leeches sucking workers, small businesses and farmers dry. They also profit from highly speculative, high risk, non-productive activities of no value to society that can and have cost people their life’s savings.


Pressure continues to mount for the federal government to hold a Royal Commission into the finance sector. Meanwhile scandal-ridden banks and insurance companies continue to act with impunity.

The government is introducing a number of token measures that it hopes will create the impression that it is coming down heavily on these vultures.

In reality, it is on the road to deregulation with plans to open the door to new banking entrants and new “innovative” financial products and services.

The present 15 percent cap on ownership for any investor in a financial institution will be eased for new entrants. The prohibition on the use of the term “bank” for authorised deposit-taking institutions with less than $50 million in capital will also be lifted.

A parliamentary committee headed by Liberal Party MP David Coleman recommended that the Australian Security and Investments Commission (ASIC) establish an annual public reporting regime for the wealth management industry.

These reports would include the names of individuals, institutions and action taken in relation to misconduct. In other words some public transparency and accountability where it is sadly lacking. The government objected to this, instead opting for aggregate data. In other words it is business as usual with institutions and individual offenders continuing to hide behind a veil of secrecy.

The report also proposed the sharing of customer data by financial institutions to facilitate the entry of new participants in the industry and competition. The government supports this move.

Meanwhile the banks are seeking legal advice regarding the feasibility of a constitutional challenge to the SA and federal levies in the courts.

Next article – Editorial – The story so far/ Class nature of ABCC

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