The Major Bank Levy: We’re all going to be hit

Michael Potter
19 June 2017 | RR29
The Major Bank Levy: We’re all going to be hit

The major bank levy was proposed in the 2017–18 Budget. The levy has numerous flaws including:

  • The costs of the levy will likely be passed on as higher interest rates for mortgages and business loans, harming households and business investment which is very weak.
  • The levy won’t materially change the expected surplus, based on current forecasts and therefore will minimally impact Australia’s AAA credit rating.
  • If the big banks have ‘unfair’ advantages, it is far better to remove those advantages than impose a levy.
  • If the levy is supposedly pro-competitive, this prejudges and devalues a separate Productivity Commission (PC) inquiry into this issue, which has been compromised before it even starts.
  • The development of the levy breaches numerous requirements for best practice regulation and increases sovereign or regulatory risk.
  • The levy cannot be ignored as being small relative to the economy. A bad policy is bad no matter what its size, and the levy is likely to be increased to a more harmful level.
  • Banks will be encouraged by the levy to use funding that is more risky for the financial system or taxpayers.
  • If the levy confirms large banks are Too Big To Fail, this contradicts official work to ensure this does not occur, and will increase financial market risk.
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