Bank deposit levy locked in

The Australian government is planning to proceed with a tax of five basis points on bank deposits to be announced in the May Budget, the Financial Review reported on Saturday.

AFR Weekend said that the government was set to proceed with the deposit insurance levy, first proposed by the former Labor government.



The newspaper also speculated that the decision would "act as an alternative to forcing banks to hold extra capital as insurance against collapse," a theory that may prove controversial given the Australian Prudential Regulation Authority's apparent acceptance of the the Financial System Inquiry recommendation that it bolster capital levels in the sector.

The levy would be put in a Financial Stability Fund, the newspaper reported.

In 2013 the then Treasurer, Chris Bowen, said the levy was budgeted to raise A$408 million over its first six months and $325 million over the following 12 months.

While the levy would be allocated to a dedicated fund, the government would still count it as revenue for budget purposes.
 Bowen said then that the Government was adopting the plan on the basis of advice from the Council of Financial Regulators, which has long championed such a scheme.

Australia was obliged to rush in a system of deposit insurance in 2008 at the height of the GFC.

An IMF review of Australia's financial sector in 2012 recommended the levy.

The additional tax is small beer in the context of aggregate tax of $13.7 billion paid by banks in 2014, an analysis of bank tax circulated by the Australian Bankers Association on Friday shows.

The ABA used that paper to argue that  "the Australian banking industry pays a lot of tax and levies."

The ABA analysis went on to observe that "Australian banks pay a higher effective rate of tax than banks in other OECD countries."

Australian banks "exhibit the smallest gap between their average effective tax rate and statutory corporate tax rate, with an average effective tax rate of 28.63 per cent versus a statutory corporate tax rate of 30 per cent," the ABA said.

"In general, banks in other OECD countries pay far less than the statutory
corporate tax rate."