Be clear on this: the bank levy exists because no politician can sell a GST of 15% on most goods and services we buy. The tax experts and top accountants keep telling us that Australia relies on income (or direct) tax and has a low reliance on indirect taxes (such as the GST).
Malcolm Turnbull started off as a gutsy leader, who wanted a higher, broader GST, until the polls and the scaredy cats in his party talked him out of it.
The UK is heading towards a 17% company tax rate because it has a VAT (or value added tax, like a GST) of 20%!
In 1985, Paul Keating wanted an indirect tax (a retail sales tax) but he was rolled by Bob Hawke’s fear of a voter backlash. As a result, we got a pile of direct taxes, like a new capital gains tax (CGT), a fringe benefits tax (FBT) and a bigger reliance on the wholesale sales tax.
The bank levy will slug banks 0.06% a year on their liabilities (their loans) and will make the banks think of ways to cope with the slug.
They could try and pass it on but the Government will be watching and waiting to pounce, if they do that. They could cut costs to offset the impact on their bottom line, so labour hiring and firing can’t be ruled out. They could endure lower profits, which will hit their share prices and punish superannuation trustees.
About a quarter of bank shares are held by super funds but those who don’t care about fairness, when it comes to the well-off, say don’t worry because it will hit people who can afford it.
The problem for me is: who is well off?
Bill Shorten thinks anyone on $87,000 or more should pay the Government’s extra Medicare levy of 0.5% to pay for the great, caring idea of the NDIS. Given the overall tax system, these people pay more for being an Australian and contribute more dollars for Gonski education, the safety we get from the police and armed forces, the roads we drive on and for the greatness of living in Australia.
Right now, there’s a lot of envy in our politics and social discourse because some Australians are living too long, have too much money in retirement, have homes where younger people want to live and some are staying in the workforce too long!
They’re lumped together under the label of “well-off” and are despised in some quarters. However, many of them have worked hard, saved hard, made risky investments, gone without to build up their super, gambled on property investments, spent time learning about money, paid for external help and did smart, responsible stuff to be a success.
Their reward is to be despised and taxed more heavily, which might seem unfair to them. It might be akin to that student who worked hard at school, studied hard at home, was cooperative and not a rebel and didn’t enjoy the life of Reilly but today has ended up with a high income. In contrast, those on low incomes now, might have done the opposite and enjoyed life when they were young but are now battlers.
The success stories have paid a lot of taxes in a lifetime, employed a lot of people, trained many and created incomes and opportunities for others because of their ability and sacrifices. And now they’re despised and a target for tougher tax treatments. These people cop it but occasionally think it unfair.
When it comes to the banks, they are supported by taxpayers but, to date, we haven’t had to bail them out like the Americans had to bail out their banks in the GFC.
One commentator actually said this: “And taxpayers carry the can when it all goes wrong.” However, it hasn’t happened, though I guess it could.
Our banks do borrow more cheaply because we back them as taxpayers but they’re not alone. We back farmers in fire and floods and householders get help from natural disasters.
My concern is that our banks are some of the best in the world and, in the GFC, were in the top 10 on the planet. Sure, it’s a national sport to bash them but if they were as irresponsible as the US, UK, Irish, Spanish, Italian, Icelandic and Greek banks, then we would’ve actually bailed them out, a recession would have come and unemployment would have gone over 10%.
In actual fact, our quality and maybe over-rewarded banks actually brought something to the table that meant unemployment didn’t go over 6% in the GFC. Sure, Treasury, APRA and the RBA had roles to play in that great economic story for Australia in the GFC but bank leadership here was better than just about every country in the world, including the Germans and the Swiss.
Our banks will cope with this new tax but I sometimes wonder why we punish our success stories. I know it’s because they can pay but I wonder if it’s a great example to give kicks in the butt to high achievers and to hold them in contempt.
The only good that comes out of a bad tax system might be the ingenuity of the response that might make our banks (and other businesses affected) even better in terms of world standards.
I damn well hope so.
We're giving you FREE access to find out which stocks our Switzer Report experts think have the highest upside in October and beyond!