There is little that can be done to stop the banks passing the tax on to customers.
After landing a bank levy bombshell in Tuesday’s Budget, Treasurer Scott Morrison has declared that there is little that can be done to stop the banks passing the tax on to customers.
Speaking on the ABC’s Insiders program yesterday morning, the Treasurer conceded that despite Prime Minister Malcolm Turnbull stating last week that banks could face consequences, the banks had form raising their rates despite the cash rate remaining static.
“In the same way that banks have put up interest rates, even when there hasn’t been a move in the Reserve Bank cash rate,” Mr Morrison said. “I mean, banks will find any way they can to charge their customers more with fees and charges.”
Hitting back at the banks for their claims that the levy was not a fair tax on business, Mr Morrison said, “To suggest this is somehow the end of financial civilisation as we know it is one of the biggest overreaches in a whinge about a tax I’ve ever seen.”
Just hours after the announcement, Australian Bankers’ Association Chief Executive Anna Bligh stated that the banks would have to find some way to pass the costs on, in the same way any other business would. Ms Bligh has also written to the Treasurer asking him to release details of Treasury modelling for the $6.2 billion tax before its intended implementation on 1 July 2017.
In a media release dated 12 May, Ms Bligh said of the tax, “The major banks are terribly concerned about the risk of major unintended consequences of this new tax, and there is an urgent need for more detailed information so we can properly assess its impacts.
“This process is already breaking all the rules and conventions about major taxation implementation, including no prior consultation, no exposure draft legislation for public comment, and an extraordinarily brief timetable before a hastily designed tax is presented to the Parliament.
“Disastrous unintended consequences could flow from this rush.”
Mr Turnbull however believes that the banks concerned should simply wear the tax and that they have enjoyed the support of the Government for too long. Speaking to Sky News last week, Mr Turnbull said, “They don't need to pass this on, they're very profitable and the ACCC will be watching them very, very carefully indeed.
“Banks benefit from the implicit support of the government, they are as they say too big to fail.
“It's fair they make a contribution... it helps us bring the budget back into balance.”
Whether the Australian Competition and Consumer Commission (ACCC) will be able to act on any interest rises as a result of the levy remains to be seen, however, Mr Turnbull said that customers could always choose to change to a smaller bank that wasn’t subject to the levy.
“It's a competitive market and there are other banks that are not caught by the levy, there will be plenty of opportunities for people to go elsewhere if the banks choose to raise mortgage rates.”
It seems that while the banks may not be happy with the Treasurer and the Government, the voting public have largely given Budget 2017 the thumbs up. The latest Fairfax Ipsos poll reports that 42 per cent of voters think the Budget is fair, with 39 per cent saying it was not.
While everyone (unless you're a banker) agrees that the big four banks plus Macquarie make more than enough money for their shareholders, often at the expense of their customers, it’s worth noting that much of their growth is the direct result of the ACCC allowing the absorption of smaller banks and privatisation.
Westpac was allowed to take over the Bank of Queensland, the Bank of Melbourne and St George Bank, while the then Government privatised the Commonwealth Bank between 1991 and 1996. Even the smaller banks have been allowed to merge, with Adelaide and Bendigo banks becoming one in 2007.
It’s hardly surprising then that the big banks are now so large that they simply can't be reined in, or heed what the Government now says.
But who ends up paying? The customer of course. While the Government may wave the big stick of the ACCC, it can hardly be said that this has had any previous success with large financial organisations. And as for the suggestion that customers simply change banks, ask anyone who has recently tried to move a mortgage just how difficult it is.
Those who have had their mortgages for some years may now struggle to secure another loan, despite being able to meet their repayments. Lending criteria changed post the GFC, largely at the behest of the Australian Prudential Regulation Authority (APRA), which now requires banks to hold more capital against their mortgage books to prevent defaults. So those who were granted a mortgage five or six years ago, may now be considered too risky.
And let’s not forget that people’s circumstances change over time. Maybe they no longer have the salary they once did. Or perhaps they’re now approaching retirement and considered not such an attractive option for lenders.
The reality for many households is that changing banks simply isn’t an option unless you live that idealised version of life that the Governments seems to believe is commonplace.
What do you think? Have you ever tried to change banks? Did you find it easy? Do you think that the banks will simply increase their rates to cover the costs of the levy and possibly even more?