My latest column for The CEO Magazine sees Scott Morrison enjoying his move to the political centre via the new bank levy.
I still haven’t worked out whether this particular $1.5 billion a year bank liabilities tax is actually good policy. But it has at least some policy justification.
And my column is not policy analysis; it’s an analysis of the Big Four banks’ behavior over the past two decades, and how easy they have made it for Morrison to start beating them up. Few people anywhere love banks, but Australia’s quite successful institutions have been peculiarly passive in the face of mounting hostility. Now they’re paying the price. This is not just my view; it’s Mark Textor’s view as well.
Not everyone agrees with this analysis. Here’s Mungo McCallum:
Turnbull and his mates have a lot more than a thousand quid to play with, but they are still seriously outgunned by the banks … It is not clear just what penalty rate the banks will offer their staff members to coerce them into the coming battle, but you can bet they will be willing to fight to the last man (or woman) to preserve their privileged positions. Whether Turnbull and Morrison will have the same stomach for a protracted and ugly campaign is yet to be seen.
Maybe. But my guess is that the banks will prove simply too conservative to mount a political campaign. They know it would stir up even more hostility. Unlike the miners, banks still have to deal with customers every day, and I’d pay good money to see bank tellers trying to explain to customers why the bank tax is a bad thing.
And besides, what would be the clarion call of their campaign? “Vote Labor to get rid of this terrible impost that we’re going to pass on to you”?
I don’t think so. The last really bold thing the Big Four banks did to shape consumers’ opinions of them was that innovative bunch of secret payments to Alan Jones and John Laws known as “cash for comment”, and that didn’t really work out so well. My guess is that eventually they’ll take it and smile. They don’t really know how to do anything else.
I haven’t put much time into assessing the bank tax so I reserve the right to change my mind, but my immediate reaction is that it’s exactly right in principle and too small in practice – a levy for the government’s need to bail them out if they fall over which then turns up in an implicit subsidy to their cost of capital – which the bank tax taxes back.
The Bank of England published a measure of this implicit subsidy for being too big to fail for some time during the GFC. They may still do it. It turns out to be a very big number and a damn site bigger than 6 basis points. Meanwhile in Australia, our central bank isn’t quite so outspoken.
But some bright spark in Treasury or PM&C may have managed to be in the right room at the right time to sell this, though it looks a fair bit too small to me. Chris Joye seems to be arguing something similar. From a bulk email he sends to subscribers:
I too reserve the right to change my mind but I would simply implement most of the Henry review. This is not there except indirectly.
I see nothing wrong with a tax on super normal profits like the Mining tax but this is different.
On my back of envelope calculations this costs the big banks about 3 basis points so I expect them to ensure customers pay this the next time they put interet rates up because of the cost of funds which should occur sometime this year given how the US economy is going.
If the big four did pass on the tax to their customers, do you think the ‘non big four’ banks, building societies etc would grab the chance to be more competitive or grab the chance to raise their charges?
Great question. Detailed response here. My bet: mostly, they’ll raise charges.
Thanks David.
I think the hatred towards banks is somewhat irrational at the individual level (effects of cartels etc. are obviously differently — but these occur across many industries). The service I get from banks is exceptional compared to other places, including quite technical stuff like stopping illegal charges to my cards. This is all for around $100 a year and any other services I want and need to pay for there is great competition for and are also pretty cheap. Who else gives me such good things for such a tiny price? A subscription to a single computer programs can be more than this, with no help if it doesn’t work. Similarly, if I compare all the other essential services I used (gas, electricity, phone, internet, …), I get many more problems including ones that should be technically easy (e.g., getting bills right from meter readings).
Conrad
We have been with one of the ‘ middling’ regional banks for about 15 years, service is good and the manager and staff know our names :
A few years ago I accidentally wrote a check that was worth more than I had in my check account, the manager rang me and said come over and transfer enough into the account, there were no ‘ dishonor fees etc
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