Budget 2017: Nick Xenophon foreign banks proposal shows bank levy folly

The Australian Financial Review

First it was the company tax cut. No, said Labor and crossbenchers, that couldn’t go to big companies because it would give money to bad multinationals. Don’t worry, said the government, we’ll only give it to small businesses first. Then came the 457 visa crackdown as the Coalition said too many local jobs were being taken by skilled foreigners. Labor said it wasn’t tough enough. Now the government’s new bank tax targets the big four Australian banks plus Macquarie. That’s supposed to be a “fair contribution” to fixing a budget deficit neither side of politics has been able to close and to give the smaller banks a competitive legup. As Treasurer Scott Morrison adds, it’s also because the big banks make lots of money and no-one likes them. But, no, says balance-of-power Senator Nick Xenophon, the bank tax needs to hit foreign banks too. That could raise up to $800 million over four years to fund a compensation scheme for tens of thousands of victims of bad financial advice.

When tax policy is run by populist sound bites rather than proper process and principle, why not? The tax targets are foreign (tick), banks (tick), they don’t vote (tick), and even better their shares don’t even show up in most people’s superannuation funds! What’s more, some of these foreign banks, unlike Australia’s well-capitalised, well-regulated sector, had a hand in the global financial crisis, so they deserve to be punished.

But extending the bank tax to the liabilities of foreign banks, however, would not only be technically difficult, but also folly. By acting as a disincentive for foreign banks to set up shop or remain in Australia, it would reduce competition in the banking sector after some foreign banks pulled out in the wake of the financial crisis. That would not be good for the bank customers that both Mr Morrison and Senator Xenophon think should get a fair go.

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