The combined SA and Federal bank levies are less than one-third of IMF ‘safe maximum’

A new report from The Australia Institute’s Senior Economist, Matt Grudnoff, reviews the economic impact of the South Australian government’s proposed bank levy.

The research finds that the banks are not only very capable of paying the 0.0036% levy on the same liabilities that the federal government levy is based on, but also that the levy is good economics, justified by the unique structures governing banking in Australia which help make it the most profitable banking sector in the world.

New polling, conducted by ReachTEL for The Australia Institute, shows South Australians are split on the issue with opposition at 42% and support at 41%, with a high number of undecided (17%).

“Despite a ferocious campaign from the banks and big business, SA voters are evenly split on the issue when confronted with a straightforward, unbiased question. This is in contrast to other polls released over the last days,” Matt Grudnoff said.

Question: The South Australian government proposes to put in place a tax on banks at the state level in South Australia.  Do you support or oppose such tax on the banks?

This survey of 1,589 voters in South Australia was conducted night of the 29^th June 2017. The data has been weighted to reflect the population age and gender distribution as provided by the ABS. Copyright ReachTEL Pty Ltd.

The report looks at examples of bank levies globally, which are common, Grudnoff points out that the IMF recommends a safe maximum for a bank levy of 20 basis points. The SA levy is 0.36 basis point, making the combined Federal and State levies 6.36 basis points.

“To put the size in perspective, we need to recognise that 0.36 basis points is thirty-six in every million dollars of defined liabilities. Australian banks can well and truly afford it,” Grudnoff said.

“Bank levies have been implemented in many countries around the world, particularly in Europe. It’s telling that the IMF suggests a safe maximum of 20 basis points – more than 3 times the combined Morrison and Weatherill levies.

“The tax simply can’t deter investment in SA as it is levied on a proportion of the banks national equity. If revenue raised in this way that was then spent on labour intensive services like health and education, it would be a net job creator.

“With both federal and state governments suffering revenue problems stemming from tax cuts during boom years, politicians are left with a choice: raise taxes on workers, or tax the world’s most profitable banks.

“When it comes to rewarding their CEOs, the banks don’t appear to be feeling as hard done by, paying out $45 million. That’s around half of what the SA levy proposes raising on just five individuals.

“For quite some time we’ve heard Prime Ministers and federal Treasurers calling on states to increase their own revenues. This is a fair, simple and economically responsible way for a state to do just that,” Grudnoff said.

Key findings:

• SA bank levy is just $36 in every million dollars of bank liabilities
• Bank levies are common around the world and Morrison and Weatherill levies are only a third of IMF safe maximum
• The bank levy could be employment creating if the money is used in employment intensive services like health and education
• The bank levy simply can’t deter investment in SA as it is levied on a proportion of the banks national liabilities
• Federal and state governments are suffering revenue problems and they have a choice of raising taxes on workers or to tax world’s most profitable banks
• The big banks pay their 5 CEOs $45 million which is about half what the SA levy is expected to raise
•  The federal government should encourage other states to follow SA lead as the bank levy is away for states to reducing their reliance on the federal government