Monday, 19 June 2017
Major Bank Levy Bill 2017, Treasury Laws Amendment (Major Bank Levy) Bill 2017; Second Reading
I rise with much gusto today to contribute to the debate on the Major Bank Levy Bill 2017. I am very glad to say that Greens policy now for nearly a decade has been to put a levy on the big banks here in this country. This levy is not quite as big as we would like to have seen, and it may have been structured differently under our policy. Nevertheless the principles are the same. To me, turning good policy into legislation and laws is a bit like baking a cake. It has to have the right mix of ingredients for it to be appetising and even edible for lots of people. But, no matter how much you put in it, if you do not set the oven to the right temperature you are not going to be able to bake it and you are not going to be able to eat it.
When I look at what is before us here today—this cake before us here today—this is hopefully $6 billion of revenue that we have taken off the big end of town—$6 billion of revenue from the five big banks, which are the most profitable banks in this country and certainly amongst the most profitable banks in the world. If we did not take $5 billion off them, or $6 billion, hopefully, if we have our numbers right, then we would be taking it, under this government, based on their track record, off pensioners, off the unemployed and off the vulnerable. That has been the track record of this government for the last four years. So let's be very clear about this: this is the top line. We are taking money off the big end of town. This is coming from a government who fought tooth and nail to scrap a mining tax and who I never believed, even a year ago, would put in place a policy like this policy that is in front of us today. So when I think about the oven temperature, there are a lot of things that have set the oven at the right temperature for us to be, hopefully, passing this piece of legislation in the Senate very soon.
We have seen the global backlash not only in Europe recently and in the UK but also in the US. We have seen people wanting their government to tackle inequality and to not just focus on trickle-down economics and zombie cuts to the most vulnerable. They want to see the government actually taking on big business and big multinationals. We have seen a backlash against multinationals and globalisation, and, in this country, I believe this Senate and many people in this Senate have fought really hard to hold the big banks to account in recent years. Let's be completely honest—Senator Gallagher talked a little bit about it in her speech—the banks have not done themselves any favours in this country. There has been scandal after scandal, which a number of us have heard the evidence on. We have heard from the victims of financial crime, and I have no doubt that the threat of a royal commission will help.
For the record, let's must make this very clear: the Greens were the first to campaign on this, and we are very glad Labor joined us—make no doubt about that. The parliamentary Banking and Financial Services Commission of Inquiry Bill—the historic bill that passed this Senate last week—has set the oven at the right temperature in this country for this piece of legislation. I am very proud to be part of a party that has consistently fought for this kind of policy, and I commend the government for bringing it forward.
Let's talk a little bit about those ingredients in the cake. To be clear, this is not a radical idea. As much as people think the Greens only have radical ideas, levies on banks, in some form or another, whether they are transactional taxes, levies an assets, levies on liabilities or a Tobin style transaction tax, are common around the world, especially since the GFC. There are nearly 18 countries around the world that have levies on their major banks. The justification for those levies is not just that governments are tackling inequality by levying revenue off wealthy banks. The justification in many of those countries is the same underlying principle as why we have this legislation here before us today, in my humble opinion. That is, the taxpayers of these countries and of this country have conferred an advantage on the big banks since the GFC.
In Australia, it is really clear. If we look back to the GFC in 2008, stock markets were collapsing and Macquarie Bank's share price had nearly halved in Australia. The ex-finance minister, Nick Sherry, met with bankers in Sydney at Kirribilli, I understand. Five days later, we got Prime Minister Rudd's gold plated response to the GFC. We got an explicit guarantee on wholesale funding and on retail funding and we got a ban on short selling. It might have been a coincidence that the big bank executives had just met with the government, and one might think that they had even suggested this might be a good policy, but it worked. The banks' share prices recovered, and those big five banks in Australia had an explicit guarantee on wholesale funding and an implicit guarantee. It would probably take me 10 minutes to explain the difference, but let me say that the implicit guarantee is that markets price in a too-big-to-fail guarantee anyway. The banks have ripped tens of billions of dollars in guarantees from the Australian taxpayer. And it was good policy—do not get me wrong. I do not think the government did the wrong thing; I think they did the right thing. We had financial contagion around the world at the time, and this steadied the ship. The implicit guarantee—that these banks are too big to fail—has allowed the big banks to have a wholesale funding cost advantage that has reaped their shareholders, and the banks would argue the Australian people, tens of billions of dollars. So how much money has the too-big-to-fail guarantee made for the banks? The Reserve Bank, in an occasional research paper, estimated that the implicit guarantee reaped the big banks $3.75 billion in 2013 alone. On Friday we heard evidence in the legislative committee inquiry from Mr Mike Hirst from Bendigo and Adelaide Bank that, on his bank's estimation, this year alone the banks have made $4 billion out of this too-big-to-fail guarantee.
Think of the too-big-to-fail guarantee as an insurance policy that the banks had whereby, if they failed, the taxpayer and the government would step in and bail them out. But they have never paid a premium for that insurance policy. That is what this bank levy is. This bank levy is an insurance premium paid back by the banks to the Australian people. But I tell you what: if they paid the full premium of what this has been worth to them, this levy would be four or five times bigger than it is now, set at six basis points—much bigger. My estimation—I ran this by some witnesses on Friday, who did not disagree—is that during the GFC and after the GFC they have reaped $40 billion to $50 billion from taxpayer guarantees, explicit or implicit—call it whatever you like. In fact, during the GFC the Reserve Bank estimated that the benefit they accrued was three to seven times the amount they calculated in 2013, which is $3.75 billion. So the number is probably even higher than that. So what is wrong with us as a parliament and the taxpayers of Australia saying, 'Time for you now to pay back that advantage that we gave you that you have consistently traded on.' That is what this is today.
I want to talk about a couple of other policy justifications, firstly in competition. It was pointed out to the committee on Friday that, when the too-big-to-fail guarantee was put in place—the insurance policy underwritten by the Australian people—the banks' share of the mortgage market went from 60 per cent to 80 per cent, where it currently is. For various reasons—it has not just been the too-big-to-fail guarantee—the nature of their diversified businesses means that they have a lot of advantages over smaller banks. But they have seized market share from the smaller banks. This will go some way to levelling the playing field. That is exactly the evidence that was provided to us by Bendigo and Adelaide Bank, ME Bank, the Customer Owned Banking Association and a number of other smaller banks. In fact, did you know that the Australian Bankers Association, who has been lobbying against this piece of legislation, has 25 members. Five of them oppose the levy and 20 support the levy. I had to draw that out of the Bankers Association on Friday. But it is no surprise that those five are the big banks. They do not support this levy. By the way, I also drew out of them in questioning that they are very unlikely to support any kind of policy that takes money off them and their shareholders. So, had we put a superprofits tax up and had we gone through a lengthy consultation process, it is very likely we would have got a mining tax style, aggressive advertising campaign to undermine good public policy. We would have gone back to where we were five or 10 years ago. Once again, I do not believe the banks would have supported any policy that asked them to put their hands in their pockets. So there is a good chance this will go some way to increasing competition.
In relation to systemic risks, one of the underlying policy objectives that you can find in the budget papers is this:
The major bank levy is similar to bank levies imposed in other advanced countries, recognising that large leveraged banks are a source of systemic risk in the financial system and the wider economy. Those risks were made evident in the global financial crisis.
It will complement prudential reforms being implemented by the Government and APRA to improve financial system resilience.
As to those systemic risks, the head of Treasury and other senior public servants, during estimates, came out and said, 'The modelling shows there will be no impact on increasing systemic risks, but potentially this could help reduce systemic risks.'
What about non-systemic risks—the risks that are directly associated with the banks? Adelaide Bank made a really good observation: if this is going to do so much damage to the banks, as they would like you to believe, from the evidence they provided to the committee on Friday—and there are thousands of financial minds out there, every minute, every hour of the day, looking at pricing risk—why have their credit spreads not changed since the implementation of this policy? Clearly financial markets do not believe this is going to increase the risk to these banks' balance sheets or present any problems to them. That is also why Standard & Poor's left them with a AAA rating only a couple of weeks into this bank levy debate, because nobody sees this as being a particular impost on the banks.
So let's get to the point that Senator Gallagher focused on. May I say to those people listening who may have heard Labor's contribution—and I am sure Senator Ketter will follow suit with similar lines of debate—you might be wondering why a progressive party like Labor is throwing mud at the government on this bank levy, because it is $6 billion from the big, wealthy banks that we do not have to find from elsewhere. When playing politics, we throw mud if it is not our policy. I understand where this comes from with the Labor Party; they were mercilessly, viciously, ruthlessly and cynically pursued by the other side of the Senate over a policy that could have worked—a super profits tax on the mining industry. I am sure there is just a little bit of payback in the Labor Party's rhetoric on the back of this. Nevertheless, as Senator Gallagher made clear, they will be supporting this, because the oven is set at the right temperature and this is a cake that we all want to bake in the Senate.
Getting onto the banks' key argument against this policy: they do not believe that the word 'absorb' exists; they say they cannot absorb these costs. Firstly, may I point out that, from the levies overseas, we have no evidence, unfortunately, as to exactly how these costs are being passed on, if they are being passed on—whether they are being passed on to various stakeholders like customers, shareholders or potentially even workers. It is a function of the concentration of the bank sector and a number of other variables, so we are flying blind. I thought the banks were very quiet on Friday as to how they might pass these costs on—it is not something they particularly want to talk about—but the Treasury did model them, and so they should. When we go into committee I will ask some more specific questions on this.
The Australia Institute did try and model it, and they said, at least in terms of shareholder impact, the average impact to Australian superannuation balances would be $7 a year. We may see some costs passed on to customers, but we have to ask ourselves: would we rather be taking $6 billion off banks, potentially their shareholders and perhaps some of their customers, in higher charges, or taking it off the vulnerable in this country? I am guessing that, if they do make small increases in charges to customers and they change their dividend policies, those who have the most bank shares and the most financial products will, by definition, pay more, and that, in a sense, is a progressive form of taxation. But we do not know those numbers; I would be fascinated to see if there has been a study.
But here's a fantastic idea from some very good journalism by Michael Roddan at The Australian, who published an article—which, interestingly enough, the chair read out on Friday. Mr Roddan's estimate is that last year alone CEO bonuses at the banks were $300 million amongst Australia's top 164 executives. Get this: $300 million is nearly one-third of the annual amount that the banks are going to pay in the levy under this system. One-third of the levy that they are going to pay the Australian taxpayer for schools and hospitals could come out of their bonus pool. If we want to talk about absorbing the cost of this levy, why don't the CEOs of these banks forgo their bonuses and pay that money directly to the Australian people, or at least take on some of that levy from their own bonuses? I kind of joked about it, but maybe I should have been more direct in the inquiry on Friday. It will be very interesting to see if they sting customers and shareholders but do not penalise themselves and their massive bonuses that they take every year.
I would like to finish to by talking a little bit about Macquarie Bank. I thought they whinged the most on the weekend. It is interesting to note that Macquarie Bank were trying to say, 'We're not really a bank; we shouldn't be covered by this,' but some very interesting has been analysis done on the value Macquarie Bank has received from this too-big-to-fail guarantee, this insurance policy. There is an excellent article by Colin Kruger in today's CBD column. He and his predecessors have written a lot about Macquarie Bank and how much money they have made out of the taxpayer guarantee. He says:
My CBD predecessor, Michael Evans, detailed just how adept Macquarie was at ensuring the guarantee was transformed into a very lucrative business for the investment bank.
The guarantee did not just ensure these banks, like Macquarie, could raise money offshore at a time when it was extraordinarily difficult to get funding without government backing—it meant the bank could raise money cheaply.
Through its Corporate and Asset Finance (CAF) division, Macquarie deployed this funding to snap up financial bargains that were being offloaded by desperate corporations which did not have this guarantee.
In one year, CAF's profits surged from $66 million to $264 million.
Macquarie borrowed more than $16 billion under the guarantee—which is more than Big Four bank NAB.
Keep that in mind next time Macquarie argues for an exemption from the levy which is expected to raise about $50 million after tax from Macquarie, according to Moore—
who presented evidence on Friday. Mr Moore has also more or less insinuated that Macquarie might leave Australia to avoid paying this levy. That is a bit rich coming from the millionaire factory. He is one of the most highly paid CEOs in this country. His bonus last year was nearly $20 million. I can tell you for a fact that Macquarie has made a lot of money out of the Australian taxpayer guarantee. It is not a big ask for them to pay some of that back. That is what this legislation is.
In the very limited time I have left I would like to move a second reading amendment. I move:
At the end of the motion, add:
"but the Senate calls upon the Council of Financial Regulators to annually assess the adequacy of the levy in covering the estimated benefit received by major banks by way of reduced funding costs for being perceived to be too-big-to-fail."
The Greens believe that the Council of Financial Regulators is the appropriate body. It is the coordinating body for Australia's main financial regulatory agencies. It is a non-statutory body whose role is to contribute to the efficiency and effectiveness of financial regulation and to promote stability of the Australian financial system. It consists of the Reserve Bank, the Australian Prudential Regulation Authority, ASIC and the Treasury. They get together, share information and advise the government on the adequacy of Australia's financial regulatory arrangements.
If this falls short because in some way or another the banks are able to play the levy through the liabilities that they add or do not add or because somehow the Treasury have made a miscalculation at as to the total amount this would raise, this amendment would adjust the levy on an annual basis to make sure we meet the $6 billion target, based on the justification that these banks have reaped $40 billion to $50 billion of taxpayer benefits over the last decade following the GFC. With my last 14 seconds I would like to ask the Senate to consider that. We will obviously also be acting during the committee stage.