The Turnbull Government last night successfully passed legislation through the Parliament which will give effect to the Major Bank Levy from 1 July this year, as promised in the 2017 Budget.
This levy will ensure that Australia’s largest banks make an appropriate additional contribution to the Australian community, in recognition of the unique position and advantage they hold within the Australian banking and financial system.
It is legislated at a rate of 6 basis points – or 6 cents for every $100 of specified liabilities – and applies only to the big 4 banks and Macquarie Bank, which currently have liabilities greater than $100 billion.
Importantly, Treasury estimate the levy will raise around $6.2 billion in revenue over four years.
By reducing Australia’s largest banks’ funding cost advantages, the levy will also contribute to a more level playing field for smaller banks and non-bank competitors.
Both by domestic and international standards, the major banks are very profitable and the cost of the levy represents a small share (estimated at around 4 per cent) of profits.
They can choose to absorb the cost of the levy, in the same way that small businesses and families often have to absorb increased costs.
Implementation of the levy is not an excuse for applicable banks to increase costs for customers and the Government has directed the ACCC to undertake an inquiry into residential mortgage pricing. The consumer watchdog will be able to use its information-gathering powers to obtain and scrutinise documents from any bank affected by the levy and to report publicly on its findings.
Deposits protected by the Financial Claims Scheme (applying to protected deposit accounts of up to $250,000 per account-holder, per ADI) are not affected by the levy, nor are additional Tier 1 capital (held by the banks to help meet capital requirements which protect the stability of the financial system) or a banking group’s non-bank businesses - insurance and superannuation.
The levy will complement prudential reforms being implemented by the Government and APRA to improve the resilience of our financial system.
Passage of the Major Bank Levy legislation demonstrates that the Turnbull Government is getting on with the job of delivering its 2017 Budget, which made the right choices to secure better days ahead for Australians.