View from The Hill

View from The Hill

Banks may squeal about new tax but they are outgunned

Scott Morrison and Malcolm Turnbull have landed themselves in a fight with the banks. AAP/Lukas Coch

Paradoxically, the budget item currently generating the most heat is one that instantly won bipartisan support.

The big banks are livid at the new tax on them, designed to raise more than A$6 billion over the budget period in the cause of “budget repair”. It is accompanied by measures to force better behaviour, and to help people who’ve been treated badly to get redress.

What’s not yet clear is whether the banks will ramp up their anger from rhetoric into a serious campaign.

The fight against Labor’s mining tax springs to mind. But the banks aren’t in the position the miners were in 2010 and later.

Mining companies mightn’t have been corporate favourites, but the banks are deeply unpopular. Their cries of woe and warning are likely to fall on the deafest of ears.

Most important, the mining tax was seized on by the then-opposition to flay Labor, and that strengthened the miners’ hand. When government and opposition agree about a tax, it is extremely hard for the affected sector to get political leverage.

The banks did get some comfort on Wednesday from former prime minister John Howard. Calling what the government dubs a “levy” a “tax”, Howard said “the arguments against the mining tax applied by Wayne Swan can be applied here with equal force” and contested the government’s point that the tax was in line with other advanced countries. “I think some of the comparison with the UK are not complete,” he said.

He was also concerned about the government’s level of intervention in relation to the banks, notably its proposed Banking Executive Accountability regime, that will require senior executives to be registered with the Australian Prudential Regulation Authority, with the threat of breaches leading to disqualification from holding executive positions.

For a government that has trenchantly resisted a royal commission into the banks – which is still a partisan division between the Coalition and Labor – its measures are certainly highly interventionist.

While the government continues to protect the banks from the ultimate probe, it demonstrably has little patience with them. “Cry me a river” was Morrison’s reported dismissive remark in the budget lock-up about how the levy would go down with them.

The government’s attitude is seen in the argument about who’ll be hit by the new tax. It insists the banks should absorb the levy, not pass it on to customers.

But Westpac chief Brian Hartzer said: “There is no ‘magic pudding’. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees.”

Morrison was blunt at his National Press Club Wednesday lunch: “A company has its value in the way it treats its customers.

"The banks want to send a message to their customers about how much they value them? Don’t do what they may be contemplating doing. Don’t do it. They already don’t like you very much,” he said. “Tell them you’ll pony up and you’ll help fix the budget.”

There’s been speculation of a personal element in Morrison’s issue with the banks, such was his fury at the Australian Bankers’ Association’s appointment of former Queensland Labor premier Anna Bligh as its CEO. The job had been sought by Morrison’s then-staffer Sasha Grebe.

But the key point is that the big five banks are the ideal soft target for a tax raid because they are both rich and lacking in friends.

Less ideal is the target of the budget’s other tax impost – the general taxpaying community.

The budget’s planned 2019 increase in the Medicare levy to fund the National Disability Insurance Scheme is being sold as a necessary measure in a good cause. Morrison drew on his own family experience on Wednesday by telling the story of his brother-in-law Gary – present at the lunch – who suffers from multiple sclerosis.

Labor has yet to announce its attitude to the levy increase. It’s caught between the temptation to score off the government over a tax rise and its commitment to the NDIS. One option would be to propose the increase should not apply to those on lower incomes.

What’s been termed by some a “Labor-lite” budget has raised the degree of difficulty for Shorten in crafting a budget reply that isn’t seen to fall short.

In Thursday’s speech he will reiterate that Labor opposes the ending of the deficit levy on high-income earners, saying: “At a time when the government is asking every other working Australian to pay a higher rate of tax, Labor will not support spending at least $1.2 billion each year on the wealthiest 2%.”

But the opposition has no power to stop the removal of the deficit levy, which comes off automatically at the end of June.

While Shorten is expected to leave open the possibility of reintroducing the levy, he is not expected to commit to doing so. If Labor had won the 2016 election it would have been easily able to maintain it. Once it’s gone, reimposing it becomes harder.

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