Monday, 19 June 2017
Major Bank Levy Bill 2017, Treasury Laws Amendment (Major Bank Levy) Bill 2017; Second Reading
I am in continuation of the speech I started just before question time. I was quoting from the Treasury secretary about the leak that occurred around the major bank levy prior to the budget lockup on budget day. The Treasury secretary went on to say:
I have seen nothing in the time I have been secretary to make me think that it came from Treasury. But can I give you a guarantee? No. I do not think anybody can.
He did go on to say there was only a small number of people in the Treasury who knew about this—five or so Treasury officials who would have been in a position to understand the detail of the leak that was in the paper and announced before the lockup. The opposition believes that how and when it was leaked is a very serious matter. We know that it will continue to be assessed and probed and that indeed there is an ongoing ASIC investigation into this matter, as there should be.
I will now go to the specific concerns that have been raised about the major bank levy and talk for a moment about the impact on consumers. From the get-go, we have had to witness the absurd spectacle of the government denying reality about the banks passing this levy onto consumers. When the member for McMahon, as Treasurer, introduced the concept of a bank levy, at least Labor was honest about the effect it would have on consumers. This is in stark contrast to the approach the government has taken on this levy. We had the Treasurer at his Press Club speech after the budget, pleading with the banks not to pass the tax on:
Don't do it. They already don't like you very much.
He went on to say:
Prove them wrong. Don't confirm their worst impressions … Tell them you will pony up and help fix the budget.
We now find out that these are all hollow, empty words. After a whole series of denials, once the legislation was released the RIS put a nail in the coffin of the government's claims:
It can be passed through to those the banks lend to (in respect of residential mortgages, business lending and personal credit), deal with or provide services to, or their non-equity funding sources (wholesale capital markets, depositors) or be borne by the banks themselves (through reduced profits, or via increased efficiency or other cost-cutting measures).
This was further underlined in the testimonies by the banks to the Senate inquiry last week, where they all said that the bank tax will not simply be absorbed. The banks have said that it would impact on a combination of consumers, shareholders, staff and profits—not just absorbed.
The inquiry exposed the Treasurer's fiction that the banks can swallow the tax without anyone paying for it. Shareholders or customers will pay for it. Treasury further underscored this point through their answers to the questions on notice that were put to them prior to the inquiry. Indeed, I asked the finance minister this at estimates, and the line of questioning was shut down and the questions taken on notice. When we asked for a copy of the modelling and what assumptions were contained in that modelling, we were told they would take on notice whether they would release that. When the answer came back, the answer was a very clear no: we will not be releasing the modelling. However, during the inquiry, without the finance minister there, Treasury answered questions and admitted something that the Treasurer and his colleagues could not bring themselves to do. Treasury said that the costing takes into account some pass-through of the levy to customers as evidenced by previous behaviour by the banks. This is all information the government had prior to budget day. They knew from the get-go that the banks would pass some element of this cost onto consumers.
The budget measure itself has also provided the ACCC $1.2 million to monitor the situation. But, really, how much of a difference is this going to make? The ACCC told the Senate committee on Friday that it only has the power to track mortgage costs for the next year. It will not have the power to look at other products such as credit cards or small business loans. We found out on Thursday from the RBA that banks pocketed a whopping $1.562 billion in credit card fees from Australian households in 2016. This was an increase of 3.2 per cent and it comes on top of a bumpy year in 2015 for the banks when they raised credit card fees by, I think, over six per cent. These numbers are just the fees. They do not actually include the hefty credit card interest rates. In 2016, annual fees went up and late payment fees went up, even though Australians were making fewer late payments. We have been talking about the need to improve credit card competition and consumer outcomes since 2015, when a Senate inquiry made recommendations for reform. The government responded and said that they would promise to act on these recommendations, including allowing simple online cancellation of credit cards and outlawing tricky interest charging practices—but it has been over a year and we have seen nothing. So, what we see in practice is the government spending over a year giving the banks a free pass on credit cards, and now we see the very limited scope of the powers they have given ACCC. It is entirely consistent with the hollowness of their rhetoric on the banks passing on this tax.
We have also heard in recent days the budget numbers themselves and some concerns around the figures contained in the budget about how much money the bank levy will raise. The four banks have made disclosures to the ASX, which they are required to do under the Corporations Act and the ASX guidelines, about the impact of the bank levy. Prior to Macquarie revealing what they thought the impact would be, analysis from the Deutsche Bank and Morgan Stanley both estimated that the tax take for next year would be $1 billion—well short of the $1.6 billion a year figure the government has outlined. Macquarie outlined what they thought the impact would be when they were before the Senate inquiry on Friday—a $65 million to $70 million pre-tax impact and a $50 million post-tax impact.
Adding these figures to the disclosures the ASX made by the big four, there is a total of $1.45 billion in pre-tax revenue and $1.015 billion post-tax. Either way, there is a shortfall. We know that the $1.6 billion figure is a post-tax figure and it takes into account the effects of deductions and the like. This shows that there is a $2 billion black hole in the government's figures. Treasury have given a couple of reasons that there might be a shortfall between what they budgeted and costed—in particular, credit growth and the interaction with other taxes. However, the assumption for credit growth by Treasury—5.9 per cent, which of course they would defend as a valid assumption—is higher than what Westpac assumed when asked about this at the Senate inquiry.
It remains to be seen whether this will all play out in reality. However, the disclosures and statements from the bank do not bode well at all for the bank levy take-up. Given that the operation of certain provisions allowing for the liability base for the bank levy to be adjusted by the Treasurer by legislative instrument worked only to decrease the base, what will the Treasurer have to do to plug the substantial hole in the numbers?
There were also revelations in The Australian Financial Review a few weeks ago that Macquarie were considering leaving Australia. The shadow Treasurer said previously that the bank levy liability base was clearly designed to ensure that Macquarie Bank was captured by the tax. So, Scott Morrison owns any decision by them to move operations or to be domiciled overseas. This is quickly moving from just a terrible mishandling of the process surrounding the bank tax to more concerns about the government's inability to manage the economy. Now, I do not know what Macquarie will do here, but if they do decide to leave then it is on the head of the Treasurer. If they are not domiciled in Australia then they do not pay any tax at all.
This just goes to the heart of the government's and the Treasurer's incompetence—that all the consequences of this policy were simply not thought through. And for all their bluster and rhetoric, we all know in this place where the government stands with the banks, and we saw that on full show last week. In fact, ever since we announced our policy for a royal commission the government has instituted at least 12 reviews and measures. They will do anything and everything they can do but hold a royal commission. Only a royal commission, which Labor will deliver, will get to the bottom of the culture and practices in the banking and financial services sector that have led to so many being ripped off. Only a royal commission will deliver the change the banking and financial services sector needs.
Just last week the Senate acted where the Prime Minister has been too weak, by passing legislation that would establish a commission of inquiry into Australia's banking and financial services system. In the House of Representatives, government members blocked the progress of that legislation. Labor will continue to do everything we can to get to the bottom of the systemic failures and cultural issues within the financial services sector to ensure that consumers are protected from the rip-offs and scandals of the past and that Australia's banking and financial system remains strong, profitable and well-led into the future. The Prime Minister, however, will give the big banks a tax cut; under Labor they will get a royal commission.
On the Turnbull government's watch the list of scandals and investigations into the banks continues to grow. In the past year we have seen that more than $300 million has been or will have been coughed up by the banks in fines or compensation for fraud, misleading conduct, illegal conduct or breach in consumer protections. This has included a number of scandals, including the fee for no service scandal. ASIC has released a report revealing that Australia's biggest banks and AMP spent years charging more than 200,000 customers almost $180 million in fees for financial advice services they did not even receive. Recently ASIC revised those figures up to 330,000 customers being owed $204 million—and that is not including the interest.
You have to ask: if this is not enough justification for a royal commission, on top of all the other scandals we have seen, then what is? These were not just technical glitches. In its October report ASIC found that these organisations did not have the systems in place to ensure that services were being provided in return for the fees being charged. By contrast, the licensees had much more effective systems for recording incoming revenue. In plain English, the systems were there to take your money but the systems are not there to back up justification for taking your money. What is striking is that ASIC has stated that two Future of Financial Advice requirements that were being resisted by those opposite helped to bring light to this massive fees for no service scandal.
Both before and after FoFA went through, the coalition repeatedly sought to deny annual fee disclosure statements to existing clients. They repeatedly sought to remove the opt-in requirement entirely. This was a simple requirement that clients should have to opt in to the advice relationship every two years, and yet ASIC found:
The changes made under the FOFA reforms—in particular, the requirement that customers opt in to receiving ongoing advice services, and the introduction of fee disclosure statements—contributed to some AFS licensees identifying the fee-for-service failures.
The record of those opposite on FoFA is consistent with their record of giving a free pass to misconduct in the banking and financial services sector. In the last month alone we have learnt that, despite all the Treasurer's rhetoric, the banking executive accountability regime will not protect consumers, as it will be limited to poor prudential outcomes only. These new powers would not have prevented many of the scandals that have ruined so many people's lives in the past, and it will not protect them going forward.
The government's new one-stop-shop complaints authority will not have any new or additional powers that existing dispute resolution bodies do not already have. We also know that the banks have not been adhering to unfair contract terms legislation, with the small business ombudsman finding that not one small business loan written by the big banks since November is compliant with these laws. The small business ombudsman is now investigating potential systemic issues in relation to the takeover of BankWest. We also learnt that ASIC has concerns about the delays in reporting potential breaches by the banks to the regulator. We know that ASIC has launched a special investigation into loan fraud. ASIC is investigating insurers for false and misleading and unconscionable conduct in relation to add-on insurance products.
The government is also, as we have heard in the last few weeks, dragging its feet on new penalties and rules for bank bill swap rate rigging and looks set to miss the 2017 winter sittings time frame for introduction, set by the Council of Financial Regulators. Other legislation is being delayed, including an ASIC product intervention power and much-needed credit card reforms, and the government has not even started drafting the promised reforms to payday lending laws. If all of that was not enough, the government, despite promising it would, has not even bothered to update and finalise the ASIC statement of expectations, which was provided by ASIC to the government in November last year and which has now not been updated since 2014 and has not been responded to by the government. This is the document that would tell ASIC exactly what the government expects of it, and it has not been updated, despite them having sat on it for months.
In conclusion, I want to emphasise that we support the legislation, because we are prepared to help the government in budget repair and we believe that the banks can play a role there. But, gee, they make it hard sometimes! You try to give support, and yet they still manage to bungle the implementation of this so comprehensively. There are a number of concerns with this bank levy, including the revenue that it is predicted to generate. Notwithstanding all of these issues that I have outlined with the government's measure and with the government's and Treasurer's incompetence, clear for all to see, in terms of how this has been handled from the get go—we start with the leak, we go to the provision of information and the assumptions that have been made and the withholding of critical information, we go to the costings, and then we go to who is telling the truth: the banks to the ASX or the Treasury advice to the government to write it into the budget. Despite all that we believe that budget repair is critical; we believe that the banks can play a role; and time will tell in regard to the assumptions by the government, including the fact that these costs will be passed on to consumers in some way or another—how much of it lands with consumers is yet to be seen. Despite all of this we will support this bill through the Senate when it goes to a vote.