Treasurer Scott Morrison has delayed the first payment of the bank levy by three months and argued the new levy will help restore competition in a sector that has become overly concentrated.
The Treasurer announced the change in speech to Parliament on Tuesday during a second reading of the Major Bank Levy Bill, which is expected to raise $6.2 billion over the forward estimates.
During the speech he explained that the first levy calculation and instalment will be pushed out by three months with the first payment now due on March 21.
The change means the government will collect payment for both the September and December quarters on the same day, as Treasury and the banks scramble to comply with the federal government’s budget initiative.
The banks however will take some comfort from the wording of the draft, which will enshrine the 6 basis point levy in legislation meaning that it will not be raised if the revenue dissapoints.
In a speech that was highly critical of the big four banks, the Treasurer said the levy was introduced to support competition in the banking sector.
He zeroed in on the cheaper cost of funding, benefits flowing from the internal based modelling and dominant market share as advantages enjoyed by the big four that bolstered their positions against would be competitors.
He said concentration of market power in banking had contributed to “systemic risk” and that the government was not prepared to sit back and watch the imbalances further entrench the position of the banks.
“The House of Representatives Economics Committee’s ‘Review of the Four Major Banks’, commissioned by the government last year, concluded that Australia’s banking sector is an oligopoly and that Australia’s largest banks have significant pricing power which they have used to the detriment of everyday Australians. This is not a situation that the government is willing to accept,” Mr Morrison said.
The Treasurer also took the opportunity to warn the banks not to pass on the costs to customers and said they needed to “balance the needs of borrowers, savers, shareholders and the wider community.”
Among the new detail released about the tax was the decision to exclude Exchange Settlement Balances (ESBs) held with the Reserve Bank and derivatives held by banks in some instances.
Banking sources have interpreted the decision to exclude the two instruments as an admission the policy was poorly designed. The inclusion of ESBs may have impacted RBA activities in short-term money markets while the inclusion of derivatives may have undermined the offsetting of risk.
Australian Bankers Association chief Anna Bligh characterised the concessions around ESBs and derivatives as a “backdown” by the government.
She seized on comments by the Treasurer that the banks needed to balance the needs of borrowers, savers, shareholders and the wider community as evidence that the bank levy was a tax on all Australians.
She reiterated that the the ABA would not be running a campaign against the tax along the lines of the anit-mining tax but that the big four banks would continue to push for large foreign banks to be included in the tax.