NAB chairman Ken Henry and former Treasury secretary is calling for a public inquiry into the federal government’s $6.2 billion bank levy, which targets Australia’s five biggest banks.
He has described the tax as a backward step, warning there’s “no question” the proposal will damage the economy and set the banking industry up for a future crisis by depleting the banks’ reserves.
In interviews published today, Henry — who led a wide-ranging review of the entire Australian tax system in his role as head of Treasury — has accused the government of rushing policy and lacking credibility on fiscal strategy.
The stated strategy is for surpluses on average over the economic cycle. They will not achieve surpluses on average over the cycle. To get to an average of surpluses they would have to produce a decade of surpluses of between 2 and 3 per cent.
It is about time the government owned up and said ‘actually it isn’t true. This is misleading you’.
It would be like me saying I am going to get from Sydney to Melbourne in an hour, walking, then after 55 minutes say ‘my strategy is still to get there in an hour’. It’s Pythonesque.
So the truth is there is no medium-term fiscal policy strategy at all. Instead, the fiscal policy principle is ‘let’s do the minimum we need to do in order to satisfy the ratings agencies and, in terms of the selection of policies, we’re guided by the polls’. So, in other words, do the minimum amount guided by populism.
The new bank levy is set to cost NAB more than $300 million a year.
Across the board, analysts estimate that the average profit of the big four banks will be cut by between 5% and 6% next financial year because of the new tax. The banks have been working with APRA to build up additional capital to meet global capitalisation rules.
“The government has just walked straight into that and said ‘we’re going to have those retained earnings to fill a hole in our budget,'” Henry told The Australian, adding that the government could not possibly have consulted with APRA before making the announcement.
The banks had two business days’ warning to consider their response before delivering it to Canberra.
“[The government] should not have pretended that there’s some magic pudding sitting somewhere that can generate additional funds at no cost to customers or shareholders,” he said.
“I reckon this tax — because it’s such bad tax policy but also because of the way it intrudes into the proper regulation of the financial system — should be put before an open public inquiry.
“There should be an open public inquiry because the tax lacks policy coherence both in respect of tax policy and in respect of financial system regulation.”
NAB and the other four banks affected are pushing back against the levy, which caught them by surprise when it was announced last Tuesday night.
Westpac Group CEO Brian Hartzer also says the tax is a hit on the retirement savings of millions of Australians as well as all bank customers.