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Category: Banking / Budget / Tax

Budget bank levy sets dangerous precedent, finance experts warn

16:40 UTC+8 May 10, 2017 | David Taylor

Rumours of a new bank levy were enough to rattle stocks yesterday before it was even announced. (AAP)

Finance experts are warning the Federal Government has set a dangerous precedent by announcing a multi-billion-dollar new tax on the major banks in last night's budget.

Rumours of a new bank levy were enough to rattle stocks yesterday, and major bank shares, with the exception of ANZ, continued to be sold today after the levy was confirmed.

As much as $30 billion has been wiped off the value of Australia's big four banks in the past 10 days.

Financial analyst Martin North said the Government had set a precedent for taxing any profitable sector of the economy on top of current company tax rates.

"What it basically says is, if you are a large profitable sector of the economy — and if you're in a position to perhaps make abnormally large profits — then you potentially stand at risk of being tapped on the shoulder by the Treasury to say 'pay up'," he said.

"There are other sectors like retail ... where we have the same lack of competition, and the lack of real value being created.

"This does set a precedent which I think should be concerning because essentially what it basically says is when the Government is desperate to prop up the budget, they'll go anywhere."

Under the new measures, banks with liabilities of more than $100 billion will be slugged 0.06 per cent on those liabilities each year from July 1, ultimately raising $6.2 billion over a number of years.

The levy will apply to Westpac, ANZ, Commonwealth Bank, National Australia Bank, and Macquarie Group, though some fear it may be passed on to bank customers.

Bank levy could be an opportunity: stockbroker

Stockbroker Marcus Padley argues the banks will be largely unaffected by the tax and criticisms from the sector are misguided.

He said if anything, it could represent a good opportunity for investors to buy banking stocks at a slightly lower price.

How will the bank tax work?


The bank tax was the big surprise package of the budget. It certainly blindsided the banks and their owners, the shareholders. So how will it work?

"I think the next move will be to realise that most of the selling has been done," Mr Padley said.

"What's ahead for the banks? We've just had results, we've got dividends due, we've had the budget negative — it's hard to really see there's anything terribly negative out there for the banks.

"I think the storm very much has passed.

"It may create a new downtrend, but ultimately for investors this is more opportunity than a reason for you to suddenly tip out of a very long term investment sector with a decent yield."

But Mr North said the levy represented a breakdown of the free market.

"You could argue I think that essentially this is a breakdown of standard market economics."

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