On top of reserve cutting the cash rate - a poor scenario for retirees.
Deposit levy talk weighs on bank stocks
Date August 1, 2013 - 12:40PM
Banks could pass on the levy in the form of reduced interest payments on deposits, the reports says.
Reports that Canberra plans to slug banks with a levy that will be badged as providing insurance in case future bailouts are needed is weighing heavily on bank stocks.
The AFR is reporting the federal government will prop up the budget bottom line with a new levy on banks.
The government’s economic statement, set to be released on Friday, will contain a deposit insurance levy as recommended by the Council of Financial Regulators, which will raise funds to underwrite any Australian bank should it need assistance in the future, the Australian Financial Review reports on its website.
The proposed levy would be between 0.5 per cent and 1 per cent on protected deposits up to $100,000. Advertisement
Banking stocks slumped by 2 per cent, weighing down the broader share market, in reaction to the report.
By midday, Commonwealth Bank, ANZ, and NAB were all down 2 per cent by midday and Westpac was down 1.5 per cent. The ASX financials index - which accounts for about 30 per cent of the total index - was the only sector of the market that had fallen.
The AFR quotes a senior source as saying the levy would build up funds “over time”, and would take several years to reach the billions. He said it would raise less than $1 billion over the forward estimates but build over the outer years.
An earlier report on the website said "it is understood the revenue raised would be at least as much as the $5.3 billion that the increased tobacco excise, also to be unveiled on Friday, will raise".
The revenue raised by the levy would also be added to the budget bottom line, helping the government offset a forecast plunge in revenues since the May budget and meet its target of returning to surplus in 2016-17.
“It won’t fix the surplus problem in itself but it will help,’’ the source said, according to the AFR.
The banks are understood to be unhappy about the proposal and Treasurer Chris Bowen, who has been consulting the sector about the move, will meet again today with the Australian Banking Association.
One big bank warned the levy would be passed on in the form of reduced interest payments on deposits, the AFR said.
When asked this morning if the government would look at the banks to find more money, Mr Bowen said "we have no plans to tax banks". But he said the government was in discussions with banks about financial regulation.
"Of course we’re in discussions with banks about various matters in relation to financial regulation and financial services, consulting with them about recommendations that have been made by the financial regulators and that consultation will continue," he said.
Opposition leader Tony Abbott was asked to respond to the report, but would not be drawn on the issue until the facts are known.
"We will respond to the government's economic statement when we see the economic statement. We are not going to respond piecemeal to rumoured or individual items that may or may not be in it," he told reporters in Melbourne.
He did, however, take aim at the move to raise tobacco excise, labeling it "just another tax."
"If they do this to you before the election, just think how much worse it will be after the election," he said.
