The Business Council of Australia has warned that Australia is rapidly becoming a “laughing stock” in global investment circles because of new taxes on banks as erratic decisions by both federal and state governments “carelessly undermine” the rules of doing business.
Australia’s big four banks are furious about the move by the South Australian government to impose a new state-based version of the federal government’s major bank levy, while the broader business community warned it was partly the fault of the Turnbull government for “letting the genie out of the bottle” in the first place.
The new state-based tax of 0.015 per cent on liabilities is forecast to raise $370 million over the next four years and was one of the revenue raising measures announced in South Australia’s budget on Thursday.
The tax will be raised on top of the federal government’s Major Bank Levy of 0.06 per cent on liabilities, which the government has forecast to raise $6.2 billion nationally over the next four years. The federal government’s major bank levy passed into law on Monday evening after weeks of spirited public debate.
ANZ chief executive Shayne Elliott said the SA tax would weigh on economic growth in a lagging state economy and that state Treasurer Tom Koutsantonis was out of his depth, as Mr Elliott warned of rising political risk.
Mr Elliott said the state should be much more welcoming of both investment and capital.
“All businesses will rightly question the political risk associated with investing in a state with a government prepared to unfairly target an industry that has played a significant role in supporting its lagging economy,” Mr Elliott said. He said “opportunistic and ill-considered cash grabs” such as the bank levy showed a clear lack of understanding by Mr Koutsantonis of the role banking played in the local economy.
The big four banks – ANZ, Commonwealth Bank, NAB and Westpac – along with Macquarie, will be caught by a new state-based bank levy from the South Australian government, which is spending $2.2 billion on infrastructure such as hospitals, schools and roads in the next year, to help kick-start a struggling economy.
Business Council of Australia chief executive Jennifer Westacott said the new bank levy “exposed the desperation of a government that is unable to get its own budget and spending under control”. “The Turnbull government must bear responsibility for letting the genie out of the bottle,” she said.
“Australia is becoming a laughing stock of global investment circles as erratic governments – state, territory and federal – carelessly undermine and chop and change the rules of doing business,” she said.
Financial Services Inquiry chairman and former Commonwealth Bank chief executive David Murray said the tax was a stupid decision that could have disastrous consequences for the people of South Australia. “It begs the question of when it will all end. This is the desperate act of economic vandals,” he said.
Australian Bankers Association chief executive Anna Bligh, herself a former Labor Premier in Queensland, accused the South Australian Labor government led by Premier Jay Weatherill of desperately wanting to raise revenue. She warned that tax policy in Australia had become a “joke at the whim of political opportunism” and called the move an “outrageous cash grab”.
“States are not responsible for banking policy. There is absolutely no policy reason for this announcement, other than a need for the South Australian government to raise revenue in a desperate political move,” Ms Bligh said.
“Let me be clear, it is not the job of banks to prop up government budget shortfalls.”
Mr Weatherill rang Ms Bligh to inform her of the new state-based bank levy just before the announcement became public when the state budget lock-up ended at 3pm. The banks have again been blindsided, just as they were when the federal government levy was announced without consultation. Mr Weatherill has previously been an advocate of a GST on financial services as part of the national debate on potential GST reform.
South Australian Treasurer Tom Koutsantonis was unrepentant and proudly claimed that the bank levy was in part helping to fund a new $200 million jobs fund as the local economy braced for even tougher times as car maker Holden prepared to shut its vehicle factory in northern Adelaide in October.
“Even if every other state follows they’d still be under-taxed,” Mr Koutsantonis said. “We know they [the banks] are making super profits. They are an under-taxed part of the economy.”
He said he didn’t want to get in a major fight with the banks. “I don’t relish going to war with anyone,” he said.
After dealing with the federal government’s initiative in a measured manner there was a palpable sense of fury emerging from the banks targeted in this latest revenue raising.
A spokesman from Westpac said that the new tax was a disgrace and could influence where the bank chose to make investments in the future.
“Today’s announcement in SA is not only bad public and economic policy, it is not in the interests of South Australians. This distortionary policy could influence decisions banks make about investments in SA” the spokesman said.
“We were disappointed by the federal government bank levy, but the SA proposal is double taxation and is a disgrace. The South Australian economy faces challenges but populism will not deliver the robust and sustainable economy South Australians deserve. As we have previously noted, there is no ‘magic pudding’.” Westpac owns one of South Australia’s biggest home lenders, BankSA, which it runs along with the Bank of Melbourne in Victoria as part of a “multi-brand” strategy.
The new state-based bank levy is part of new revenue raising measures in South Australia, which also announced a record $2.2 billion on infrastructure spending in its budget and a narrow projected surplus of $72 million for 2017-18.
The levy will apply at a rate of 0.015 per cent of South Australia’s share of liabilities. It is projected to raise $97 million in 2017-18 and will begin on July 1. It is calculated on a formula revolving around the state’s share of national gross domestic product, which is currently about 6 per cent of the national economy.
Mr Koutsantonis said he would legislate to prevent the big four banks and Macquarie from trying to recoup the levy in their day-to-day businesses.