Bank fears that cash-strapped governments will target the industry with higher taxes are mounting, as another state says imposing its own levy on banks could be an “attractive option.”
Western Australian Treasurer Ben Wyatt said on Friday that he was closely watching South Australia’s move to this week announce its own bank levy, and such a move could improve WA’s finances, though he needed to consider it in more detail.
The comments came as analysts said banks may find themselves increasingly targeted for revenue by governments, and suggested lenders retaliate by jacking up interest rates in high-taxing states.
While NSW, Queensland and Victoria all but ruled out introducing their own bank taxes, banks are also seeking legal advice in the hope of scuttling SA’s levy because of the precedent it would set.
SA on Thursday shocked the industry by imposing a new levy on National Australia Bank, ANZ, Commonwealth Bank, Westpac and Macquarie, in a plan to raise $370 million over four years.
WA’s Mr Wyatt on Friday said he had spoken with counterparts in SA about the tax, and he was watching “with interest”.
Similar to SA, the WA economy is struggling, and Mr Wyatt signalled that taxing banks would be one way to strengthen its budget.
He said WA had given up significant streams of revenue when it agreed to the GST, but the GST was not delivering for the state.
“So understandably, we’re looking at other revenue sources. This is a new one, I’m not sure how it would work, I’m not sure what the impact would be on economic activity, so they are the sort of things I need to look at.
“I’m not going to pretend it’s not an attractive option. Revenue sources that generate lots of money are something that all state treasurers look to.”
WA opposition leader Mike Nahan slammed the comments, saying a bank tax would be “highly destructive” for the state, and undermine its arguments for a higher share of GST revenue. Banks have also reacted furiously to SA’s move, threatening to curb investment in the state as a result of the levy.
The larger states, however, played down the prospects of following SA’s lead.
A spokesman for Victorian Treasurer Tim Pallas said the government had “no current plans” for a bank levy.
The office of Queensland Treasurer Curtis Pitt said: “This is not something Queensland is considering.”
Queensland’s opposition also signalled it would not support a bank tax.
NSW Treasurer Dominic Perrottet said it was not under consideration.
“The difference between NSW and South Australia couldn’t be starker – while our budget position means we can cut NSW taxes by $1.6 billion, they’re trying to fill their budget black hole with a $300 million new tax,” Mr Perrottet said.
NSW shadow treasurer Ryan Park said he had “no plans” for a bank tax.
“I don’t think it’s necessary at this stage, but we will be watching the issue carefully,” he said.
The amount SA hopes to raise from its bank tax is equal to less than 0.3 per cent of affected banks’ profits.
But analysts said the bigger risk for banks was the precedent set, with UBS analyst Jonathan Mott telling clients “Pandora’s Box is officially open.” He said banks could respond to SA’s move by raising interest rates, threatening to move out of the state, or challenging the legality of the tax.
Constitutional law expert and dean of law at UNSW, George Williams, said the banks would probably be scouring the federal statute books for any legal arguments that might defeat the SA tax.
There was no general prohibition against double taxation, he said, but there might be parts of the federal laws that could override the levy. Agreements between governments such as those on the GST were political agreements, not enforceable in a court, he said.
“I’m not surprised the banks will be scrutinising this very carefully,” Mr Williams said.
“The precedent is very significant.”
Professor John Freebairn from University of Melbourne, a tax expert, said SA had introduced a distortion into the economy that would discriminate against SA-based firms.
“The banks now have every incentive to move as much business as they can out of Adelaide and into other states,” he said. “Why in the hell do you want to discriminate between firms that operate only in South Australia and multinational businesses or those with operations in multiple states?”
Federal Treasurer Scott Morrison has also been approached for comment.