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.
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.
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.
As has been stated previously, the Labor Party will support this measure, continuing the bipartisan approach to budget repair. Let us be quite frank about this measure: it is absolutely no substitute for a banking royal commission. We know that, as Senator Gallagher has outlined, there are so many reasons for a royal commission into the banking sector: the poor culture and the thousands of Australians who have been impacted by poor conduct on the part of the banks. But this measure is a budget repair measure, and for that reason we support it—although there are so many policy development shortcomings associated with this bill that the government does make it very hard to support even something like this.
As we heard last week, gross debt has smashed through the half trillion dollar mark for the first time in the nation's history. Labor is prepared to work with the government to achieve budget repair in a way that is fair. However, this support is not a blank cheque. Labor senators will not be excusing the incompetence of the Treasurer or the government. Labor senators are supportive of the bill, but it must be noted that the recommendations in the economics committee's report are a sign that the Treasurer has once again botched the policy process. Whether it is the backpacker tax, the low-value GST or the bank levy, there is a pattern here. We have a Treasurer who fails to properly manage the Australian economy.
The Senate inquiry, as short as it was, last week did not need much time to expose the incompetence. I could spend all day talking about the policy process problems with the bill, but I will limit myself to seven areas: first, the leak on budget day, which the Treasury secretary, Mr Fraser, was quite concerned about—quite rightly; second, the impact on consumers; third, the revenue black hole; fourth, potential responses by Macquarie, which do give cause for concern; fifth, lack of policy clarity; sixth, lacklustre ACCC powers; and, lastly, the foreign banks issue.
Firstly, on the issue of the leak on budget day, the whole process with this bank levy did not start well. We all remember the leak on budget day and the response of the share market. This is not the first time a leak has occurred prior to budget night, but a policy as market sensitive as this one is normally treated with great care. The Treasury secretary stated that very few people would have known about this policy. In his words:
On the basis of what we have been told by our staff, on the basis of informed discussions with my senior executives as to who knew when what, I would be devastated. I remain, I would be devastated, if I had thought that one of my staff had been responsible for this. 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 don’t think anybody can.
It is important that ASIC conducts a thorough investigation and determines what exactly has occurred. How and when it was leaked is a very serious matter, and I do expect that their investigation will be thorough and will include the minister's office.
Secondly, regarding the impact on consumers, the regulatory impact statement released with the legislation stated what the Treasurer would not: that consumers, non-equity funding sources, shareholders and employees could bear the brunt of this levy. This was further underlined in the testimonies given by the banks at the hearing, where they all said that the levy will not simply be absorbed, including the Australian Bankers Association. Treasury further underscored this point through their answers to questions on notice put to them prior to the inquiry. Treasury said in their answers to questions on notice, very late on Friday afternoon, that the costing issue takes into account some pass through of the levy to customers as evidenced by previous behaviour by the banks. We were very keen to find out what the assumptions were that underpinned the costings for the revenue measure. The response I received, I might say, an hour or so before we were due to ask the Treasury representatives further questions, which I think was of some concern, was that bank responses to the imposition of the levy include some pass through of the levy to customers but also consequences for dividend payments and franking credits should profitability impacts have a flow-on effect to the amount of dividends they pay out. So, customers and shareholders could feel the consequence of this levy. It took Treasury officials to admit something that the Treasurer could not bring himself to admit.
Labor senators are disappointed that the government has chosen to hide this information from the public. Even at this late stage, after all the questions at estimates, the questions put on notice through the inquiry and questions put to Treasury officials at Friday's hearing, the details of the policy costing and all related assumptions have not been made available. The banks indicated to us—not that one has a great deal of sympathy for banks in this type of situation—that they were promised the modelling and the assumptions associated with the costings, and that has never been delivered to them.
I turn to the issue of the revenue black hole in this policy. Testimony given at Friday's hearing now gives a full picture of the pre-tax and post-tax bank levy figures that each bank is expecting to pay as a result of the bank levy. The banks are required by law under the Corporations Act and ASX guidelines to inform shareholders about the impact of the bank levy and to take this issue very seriously.
With Macquarie's answers on their expected bank levy figures, we now know that the total bank levy figure reported by the five banks totals $1.45 billion pre-tax, and $1.015 billion post-tax—a shortfall when compared to the budget's expectation of $1.6 billion, or compared to any other bank levy figure you find in the budget papers for that matter. Clearly there is a shortfall, and time will tell how large this revenue shortfall is. The Treasury officials would not admit this on Friday; they remained committed to the projections. There are two problems with this revenue shortfall. First, it seems that the figure for next year will not be met and, second, any revenue shortfall is likely to be exacerbated by lower than expected growth in the liability base in future years.
Treasury explained on Friday that the reasons for the shortfall might be due to credit growth figures and interactions with other taxes. Regarding credit growth, the assumption of 5.9 per cent liability growth year on year seems high—Senator Gallagher made reference to this—when banks such as Westpac have indicated that their estimates are in the order of four to five per cent. Any shortfall in revenue next year will widen if the banks' estimates are closer to the mark than Treasury's forecast. Regarding the interaction with other taxes, it must be said that this is quite a complicated matter. From my reading, it seems Treasury's response implies that dividend cuts could be a reasonable response for a bank to take—impacting franking credits available.
Time will tell if these revenue shortfalls will occur in reality. However, the disclosures and statements from the banks do not bode well at all for the actual bank levy revenue raised.
In addition, 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 only works to decrease the base, I would like the Treasurer to explain what actions he will take if the revenue shortfall does occur. I note that the shadow Treasurer, Mr Bowen, issued a release on Friday which provides a breakdown for the expected costings, both pre-tax and post-tax, for each of the major banks. We shall see whether those shortfalls do occur.
Senator Whish-Wilson touched on the issue of responses by Macquarie. I asked direct questions to Macquarie about media reports that they were considering leaving Australia. Macquarie responded by saying that no final decisions had been reached yet but that this matter was under regular review. They said:
… we would like to express our surprise that the levy is applying to Macquarie Bank, given our size and the benefit we bring to domestic competition and the role we play in bringing export income into the Australian economy. Whilst we recognise and respect the government's right to introduce laws and impose taxes for the good of all Australians, we are concerned that the impact of the major bank levy on Macquarie Group is not fully understood and that unintended consequences may result.
The concern about unintended consequences arising from this rushed policy measure was not only confined to Macquarie Bank. Other banks expressed that view.
On this matter the shadow Treasurer captured the issue very well when he said:
The bank levy liability base was clearly designed to ensure Macquarie Bank was captured by the tax so—
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.
I hasten to add that Macquarie Bank did indicate to us that they had no current plans to relocate overseas. However, the fact that they have indicated that this is a matter that they keep constantly in review is a matter which should be on the radar screen of the government. Issues like this are foreseeable. Macquarie has been considering the issue since 2007, and the bank levy is another factor that they will use in their decision making on this issue. Like the shadow Treasurer, I am concerned that this matter shows that not only has the Treasurer mishandled the policy but that the government cannot manage the economy either. Australia deserves a government that can handle these matters in a careful, considered and thoughtful way.
The next point I want to touch on is the lack of policy clarity. Several reasons were given for the rationale behind the levy. Foremost is budget repair, and this is the aspect of the bill which Labor seeks to provide support for. However, other rationale were provided—for example, competition, complementing prudential reforms and the major banks' contribution to systemic risk. These were other objectives. After sitting through Friday's hearing, it has become much clearer that competition effects are likely to be small—notwithstanding the comments made by representatives from Bendigo Bank and ME Bank—and that the levy does not complement prudential reforms, and, if anything, is slightly detrimental to reforms like total loss absorbing capital. Treasury officials acknowledge that the levy in part is in response to the systemic risk of major banks, which, in the Treasurer's words, 'ultimately fall on the broader Australian community'.
Labor supports the bill and its contribution to budget repair, as I have indicated. However, it seems that the Treasurer has only fuelled confusion when it comes to these other policy objectives. It became clear to all senators who sat through Friday's hearing that this bill raises more questions than answers when you look at these other issues. The fact that a government dominated committee had to make additional recommendations in their report is a sign that not even some government senators are clear as to the policy purposes of the bill. If you want to confirm this, you just need to read recommendations 1, 2 and 4. Recommendation 1 recommends a review of the legislation. Recommendation 2 seeks an explanation for the inclusion of Macquarie Bank in the levy but the exclusion of large foreign banks. Recommendation 4 seeks to give APRA powers to suspend the levy in times of financial or economic distress. As these paint the picture that the Treasurer has failed to properly explain the merits of the policy to senators of his own party, it is an admission that the Treasurer has once again botched the policy process.
When it comes to competition the benefits are likely to be small. The Customer Owned Banking Association said on Friday:
We think it will have a small positive impact on competition but it is certainly not enough on its own to influence competition in the way that we would like to see banking competition promoted within the Australian banking market.
I return to comments from Bendigo Bank, who acknowledge that there was a small step in the right direction that was made in respect of this matter.
In terms of the ACCC powers, my questions to the ACCC on Friday found that the ACCC's powers to take action will be limited to scrutiny of owner-occupied and investor mortgages and not other banking products. Furthermore, the scope is limited to any cost impacts that occur before June 2018. It is concerning that the government has not appropriately equipped the ACCC to discover and take action on cost pass-through, especially after all the Treasury's comments in the media lecturing the banks not to pass on the costs. As it stands, it is likely that the design of this measure will do little to prevent banks from passing on the majority of this levy to customers.
While the Treasurer talks big, when you look at the detail, he is not taking tough action on the banks. The ACCC measure is just one example of that. I took the opportunity to ask the ACCC about the scope of the watchdog's role. The powers that the ACCC will be using are not new powers; they are existing powers. They made the point of saying they are very good powers, but these are powers that are pre-existing. So the impact of the ACCC will be basically shining a light on the activities of the bank and digging into the way the bank talks to itself about how it increases its rates so as to try to set a benchmark for the future.
I have a great deal of respect for the ACCC. I think that the work they do in certain market studies that they have undertaken—particularly the petrol retailing market—is very worthwhile, and in those situations there are examples where prices are affected by that ACCC activity. I do remain concerned that this approach seems to leave a lot of scope for the banks to pass on costs to consumers in ways that are not picked up by the ACCC's activity. The ACCC is already on the record as saying that in the financial sector there is a lack of rigorous competition, and in that situation it is very easy for market participants to pass on costs to consumers.
Finally, in relation to the points I wanted to talk about, I will talk quickly about the foreign banks. We heard evidence from the major banks, who argued the levy should be extended to cover large foreign banks to maintain competitive neutrality in finance markets. Major banks argued that foreign banks are strong competitors in low-margin international markets such as institutional banking, trade credit and custodian services, so they were concerned about business being lost to foreign banks in relation to that—the Commonwealth Bank and Westpac in particular. Labor senators noted the comments from Treasury officials stating that they had considered these issues when designing the policies. However, we remain concerned about this.
In conclusion, despite the policy process issues I have gone through, Labor will support the bill and its contribution to budget repair. The issues uncovered in the Senate estimates and the short inquiry make it clear the government has botched the policy process once again, and it is fallen to the economics committee to try to clean up the mess. It should not have to be this way, but with the incompetence of the government and the Treasurer it is clear to see. Labor will still support this bill. (Time expired)
I rise to speak against the government's new bank tax. The behaviour of the banking industry in this country is a disgrace. However, this new tax is not the right response to it. To quote Yes, Minister: 'Something must be done. This is something; therefore, we must do it.' That is the argument used to corral support for half-baked and ineffective ideas. Fortunately for all of us, there are a few differences between One Nation and Sir Humphrey Appleby. This tax is something, but we must not do it.
Our banks are busy ripping off and exploiting consumers. They are getting rich at the expense of ordinary people. The government's response is to let them continue but to take a bit of the loot for themselves. People are looking to the government to protect them from predatory practices. They want structural reform of the sector. What we get instead is this new tax. It is like calling the cops to deal with a thug demanding protection money, but, instead of arresting the thug, the policeman just puts his hand out to get his cut. So, yes, something must be done, but this is not that something. This is a lazy, ugly, cheap solution that will hit shareholders and superannuation savings without fixing any of the real problems.
I challenge the government to, instead of bringing in this tax, address some of the real structural issues affecting the banking sector. Most people do not realise this, but the government regulators actually allow the big banks to help write their own regulations. Smaller banks get told how much they are allowed to borrow and how risk-exposed they are allowed to be. This is prudent; it protects against financial instability. But this same system is not applied to the big banks. Instead, they are allowed to use their own formulas and algorithms to determine how risky their loans are and how much capital they need to hold to be stable. It will surprise no-one that these internal calculations invariably result in a favourable outcome for the big banks, giving them a competitive advantage and allowing them to earn better returns than their smaller competitors.
The upshot of this sort of favourable treatment is not only the big advantage for the banks but more risk and instability for the system as a whole. A stress test conducted by the Australian Prudential Regulation Authority in 2004 found that the smaller banks held sufficient capital for housing to withstand an economic downturn, but the bigger banks used their own risk formulas and did not. But, of course, the big banks do not mind taking these sorts of risks. That is because they know they are too big to fail. The economic damage to the country would be so severe if any of them were to collapse that no government would let that happen. I know that, if things really get dire, it will be us bailing them out and paying the cost.
The government needs to look at structural reforms that prevent the big banks from shifting the burden of risk onto the public purse. This tax does nothing of the sort. The government needs to address the horrendous behaviour of some of these institutions, where we see people's properties being foreclosed on although they have not missed a single payment. More than anything, the government needs to hold a royal commission into the banking sector to expose and examine these predatory practices in a clear, systemic way.
With this tax, the government want to pretend they are finally getting tough on the banks. They are doing nothing of the sort. They continue to let the banks run rampant whilst skimming a little off the top of the banks' ill-gotten gains. This tax will do nothing to fix the problems facing our financial system. It will just make it uglier, clumsier and an even bigger mess for the people who eventually decide to clean it up.
One Nation will not support the bank tax. Come back to us with some real solutions to the real problems. Until then, I am afraid we will have to say, 'No, Minister.'
I say on behalf of my NXT colleagues that we do support the broad principles of the bank levy. One of the main reasons is that this will give a leg-up to those regional banks, those community owned banks, and a chance to compete more fairly and more effectively, because they have been at a competitive disadvantage since the GFC, when the Rudd government—quite appropriately, I believe—put up a package of measures to ensure the safety of the banks. I understand why Wayne Swan as Treasurer and Kevin Rudd as Prime Minister put up those measures to ensure the safety and stability of our major banks. But it did have the side effect, it did have the unintended consequence, of putting the regional banks, the community owned banks, at a competitive disadvantage. That is something that has been apparent over the years. It is something that I have spent a lot of time talking to the smaller banks—the non four major banks—about. This measure will help them. It will mean more active competition in the marketplace, and that is something I unambiguously welcome.
But I also think it is important that the foreign owned banks that have a big presence here in this country, introduced as part of the economic reforms of Paul Keating when he was Treasurer, should also be hit with this levy, because this could raise some $750 million to $800 million over the forward estimates. That in itself could fund a last-resort compensation scheme for the many tens of thousands of victims of financial mismanagement and fraud in this country, particularly those managed investment schemes where there are literally thousands of Australians whose lives have been devastated by them. I note that there are a number of managed investment schemes that are doing okay, but there were some big managed investment schemes that collapsed—Great Southern, Timbercorp and others—and left thousands of Australians devastated financially. I have dealt with these victims, as has my colleague Senator Dastyari. We need to give them some real hope and some tangible help by having a last-resort compensation scheme. Those managed investment schemes which were introduced in the final term of the Howard government were, I think, an accident waiting to happen. Those schemes were so highly leveraged. They were so fraught with difficulty. Because of the very high nature of their leverage, they really were schemes that could easily fall over—and they did, leaving thousands of Australians in very difficult circumstances. That is something we need to look at in the longer term. A levy on the foreign banks would help fund such a last-resort compensation scheme. That would build on the work of the Ramsey review into that.
The levy as currently proposed excludes foreign banks operating in Australia. This has the perverse impact of according a preferred status to foreign banks over Australian banks in the latter's home market. Three of the banks in question are global in size. Some of them have assets or liabilities in the trillions of dollars. They have global size and reach, and they compete in precisely the types of lending that is targeted by the levy—in particular, lending to large companies and institutions, as well as lending in the home loans in the case of HSBC and ING. They are significant lenders.
Evidence given to the committee indicates that what is being proposed in the current bill would apply to domestic borrowings. The evidence from the Commonwealth Bank in their submission is that the levy would apply to domestic borrowings if those were over the threshold of $100 billion. My understanding is that none of the foreign banks operating in this jurisdiction have domestic liabilities that exceed the threshold. But their global liabilities are very, very large and our point is that the levy should be applied to the domestic balance sheet, which is what the Commonwealth Bank has been saying.
Westpac has said, 'Selectively applying the levy places extra burdens on Australians while allowing foreign bank shareholders off the hook for budget repair.' I agree with what Westpac says about that. I should disclose that I bank with the ANZ. For a number of years I have been a happy customer of theirs, but I am sure that small community and regional banks could also provide a terrific service as well. ANZ said that:
… we believe the levy should apply to major foreign banks operating in Australia and exclude the offshore branches of Australian banks. This would be consistent with principles of international taxation, avoid double taxing Australian banks and mean that all major banks in Australia, foreign or domestic, are treated equally. Without the levy applying to major foreign banks, Australian banks will be at a significant disadvantage in the institutional markets where foreign banks mainly compete.
Further, we borrow money in offshore branches to lend to offshore institutional customers. If the levy applies to our foreign branches, it makes us less competitive overseas.
The CEO of ME Bank, one of the smaller, community owned banks, has said: 'What I believe is that we should have a level playing field and then if it can be clearly demonstrated that the foreign banks are getting into the market and there might be a real disadvantage from wherever they are domiciled et cetera then I think the levy should also apply to levelling the playing field, making everyone able to compete fairly.'
There have been some arguments put forward as to why foreign banks should not be included in the levy, and I think it is important to say why I think they are not convincing. One argument is that foreign banks might leave if the levy is extended. Spare me! That is not a credible argument. This argument is far from convincing since these banks face bank-specific levies in a range of their offshore markets—levies that were put in because banks had failed in those markets, markets where they had far larger operations than in Australia. Making the yardstick all banks with a global balance sheet above $100 billion shows that it can be done. It will raise significantly more revenue and mean that the parliament is not actively and unnecessarily discriminating against our domestic industry.
I will be circling an amendment shortly so that foreign banks are captured in the levy. This amendment will ensure that the trigger that hooks in foreign banks will be the global liability of the entity. However, the levy will only be payable on the domestic liabilities of that entity. Therefore, you will get that $750 million to $800 million in revenue over the forward estimates. As my colleague Rebekha Sharkie, the member for Mayo, outlined in the other place in her contribution to the debate, applying the levy to major foreign banks that operate in Australia will also provide the additional funding required to set up that last resort compensation scheme for the victims of financial mismanagement and fraud.
Too many financial services businesses have gone into liquidation and too many financial advisers have gone bankrupt. This has meant there are no means of redress for many thousands of victims. Any compensation scheme should also be complemented with stricter requirements for insurance for financial planners. The government's review into the dispute resolution and complaints framework, better known as the Ramsay review, has been considering exactly such a scheme. And, according to a supplementary issues paper to the review, as of 2 May 2017 an enormous $14.3 million of determinations made by the Financial Ombudsman Service and the Credit and Investments Ombudsman still remain unpaid in favour of complainants. And this figure only accounts for people who have chosen to go through a formal ombudsman complaint process. I have spoken to so many victims of financial malpractice—especially, retired Australians who placed their trust in managed investment schemes. An ongoing compensation scheme should be a priority for any federal government. The cost of such a scheme would be but a small fraction of the total revenue that the foreign bank levy would raise—$800 million over the forward estimates would go a significant way to remedying those cases of treble hardship. I think it would be a fair measure.
So we support this piece of legislation—subject to the issue of the foreign bank levy. We think it is important that the foreign banks are captured by this legislation. We do not think it is unreasonable. I think the argument put by the big banks as to why they should not be put at a competitive disadvantage are actually quite compelling. But I do believe that if we want this levy to be fair and equitable then it needs to capture those foreign banks. With those words, I can indicate that my colleagues and I will be supporting the second reading stage of this bill. We look forward to the committee stage of this bill. My colleagues and I urge the government to urgently consider the whole issue of the levy on the big foreign banks.
I rise to speak on the Major Bank Levy Bill 2017 and the Treasury Laws Amendment (Major Bank Levy) Bill 2017, which seeks to impose a 0.6 per cent levy on five banks which have more than $100 billion in liabilities. I intend to support this bill, and I hope the Liberal government will put to good use the $6.2 billion in revenue this levy is expected to raise over the forward estimates. The Liberals may think this levy shows that they are suddenly being tough with the banks. The Treasurer might even think he can bash the banks all the way from here to the next election. But I have news for him: nobody is buying the act, absolutely nobody. Nobody thinks the Liberal Party are committed to helping the battlers, because taxing a group like the big banks is never going to be a hard sell.
There is a big difference between sticking it up the bankers and sticking it up the battlers—the battlers who have had their life savings ripped away from them thanks to dodgy financial advice; the battlers who are sick and dying trying to claim on the insurance they hold with the big banks and being turned away at the door due to a technicality; the battlers who were led to put their money into dodgy investments because they trusted their financial planner to do the right and responsible thing. They trusted their bank, and that trust was broken. Tens of thousands of Aussies have had their lives ruined by these banks—and the Liberal Party thinks the problem is that they do not pay enough tax!
I am here to tell the Liberal Party that the problem is cultural. I will say it again: the problem is cultural. For decades, the banks thought it was okay to take advantage of the ordinary Australian, and, like a naughty child with slack parents, they have gotten away with it. The banks have been treating the government as a doormat, and the Liberal government has rolled over and let them.
This tax on the banks is an attempt by the government to prove they really are in control, but the banks know that if their tantrum is big enough and loud enough the Liberal government will eventually cave. We need a banking sector that is strong, not a banking sector that is able to strongarm a government. The banks reckon this is the fault of a few bad apples. Let me tell you, I have worked with a few bad apples in my time. Here is what you do with a bad apple: you throw it out, because it is rotten to the core. You do not give it a giant bonus cheque.
Only a royal commission will go to the core of the problem in the banking and financial sector. A royal commission will not make the banking sector weaker. What weakens the banking sector is the way the big banks are treating their customers. They have done it to themselves. Every scandal weakens their reputation; it wrecks their reputation. A royal commission will trigger an overhaul of the banking and financial sector culture, which will be the first step to restoring the banks' reputation, let alone going a little way to giving the public out there some trust back of our banking sector.
A royal commission will target the banks attitude of profit before people at all costs. Ideally, I would love to see a change in the way banks do business, to a focus on supporting the community. Banks are an important institution in the lives of Australians, and to approach customers with an attitude of, 'What can we do to help you?' rather than, 'How can I profit from you?' would go a long way to restoring the banks' reputation. I challenge the banks to take a people-first approach. When a customer comes to claim insurance, the banks should do everything possible to ensure that person is paid out to help support that person through the difficult times. And, if it is not too much to ask, doing so in a timely manner would be even better. People and businesses should not have to fight tooth and nail for what is owed to them, and if the bank cannot find even a little bit of compassion in their hearts and see people as people rather than the dollar signs that they see in them, let me remind them of good old-fashioned customer service. Any customer driven business owner would be able to tell you the value of customer service. It is a well-known principle: if you look after your customers, your customers will look after you. Not only will your customers look after you; they will stay with you for a lifetime.
I rise today to speak in support of the Major Bank Levy Bill 2017. I take this opportunity to speak in support of this bill with a degree of pride. This was something that the Greens proposed many years ago. It was something that the Greens put forward as a solution to the nation's revenue problem. It was a solution that we put forward at a time when we were told that there was no prospect of a levy on the big four banks being passed. Yet, like so many other areas of public policy, we have seen the Greens lead the debate and take an issue that was rejected by both of the old parties—and, indeed, by the political establishment—and, sure enough, we see it adopted and now being put forward as a measure by this government.
The reason the Greens first proposed this bank levy is, firstly, we need to recognise that if we want to fund schools and hospitals, if we want to fund a social welfare system, if we want to fund all of the foundations that we believe are the pillars of a decent society, then we need to raise revenue. We can do that in a number of ways. We can do that through our progressive income taxation system, which is why we have continued to support, for example, a tax on millionaires. It is why we support a buffer tax, a tax that says, 'If you are a millionaire we think that you should pay some tax,' and that means putting a floor on the amount of tax that people on high incomes can pay—in this case, a 30 per cent floor. It is why we support increased measures to deal with multinational tax avoidance—again, another area of public policy where the Greens lead the charge and we have now seen some action from all sides of politics.
We proposed the levy on the big four banks because they are a part of the Australian economy that makes record profits and benefits from an implicit taxpayer funded guarantee. Again, if we look at the big four banks, in profits last year alone, we are talking about $30 billion. We have the most profitable banking sector anywhere in the world. If we do not raise money from the big banks, we know that the other choices that governments make are cuts to revenue that affect ordinary Australians. We know that this government has proposed to cut funding for services and also to look at taxation measures that will affect the most vulnerable Australians. So, it is, as I said, with some pride that we stand up to say that, when a banking sector receives billions of dollars in an implicit taxpayer funded guarantee—something that gives them an advantage over their smaller rivals—it should be forced to front up for the guarantee that it receives.
We know that it has taken a while to shift the government on this, but we are pleased that ultimately they came to the table. It is good to see them recognise sound economic policy from the Greens—well done. Soon, we hope, they will come to adopt some of our other revenue proposals: reforms to negative gearing and capital gains tax, making sure that we end the big rort that is cheap fuel to the mining industry and, as I said, some of those issues around our progressive taxation system.
The banks say that they are prepared to pass on costs to consumers; they are going pass on these costs. The first thing to remember when we are talking about the raft of financial products available is that they are skewed disproportionately to those bank consumers who are on higher incomes. So, if this levy is passed on, it will be passed on to people on higher incomes. But just a word of caution to the Greens: when my colleague Senator Peter Whish-Wilson last week in the chamber put forward a private member's bill that would establish a parliamentary commission of inquiry into the banking sector, we saw that bill pass the Senate. We had what occurs very infrequently in this place—a private member's bill pass the Senate. Now we know that it is being dealt with in the House. The banking sector should know that what it has hanging over its head is the threat of a parliamentary commission of inquiry or, indeed, a royal commission. I suspect that, should this legislation proceed through the House, before it comes to a vote the government would have no choice but to support a royal commission into the banking sector. That is what faces the banking sector if it proceeds with not absorbing some of these costs, not taking the record $30 billion in profits that it made last year and recognising that that should make some contribution to this bank levy. We know that the bank CEOs are receiving enormous bonuses; they are published regularly. Australian consumers now know that our banking CEOs are basically the beneficiaries of a combined total of $300 million in bonuses, commissions and salaries for last year alone—$300 million. Here is a tip to banking CEOs: how about leading by example? How about recognising that it is an opportunity to forgo some of those enormous bonuses they receive and ensuring that they, rather than the mums and dads who use banking services, shoulder some of the burden and demonstrate that the big end of town is prepared to do some of the heavy lifting?
The bottom line is this: we are having debates in the chamber this week about how we fund our public education system. We have legislation in the form of a Medicare Guarantee Bill. The way you guarantee Medicare is not by some accounting trick, not by setting up a special bank account that does nothing to guarantee Medicare. You guarantee Medicare by funding it, by making sure that you raise the revenue to fund it. We believe that the fairest and most equitable way of doing that is to ensure that the most profitable industries in Australia do their fair share. This is why the banking sector needs to recognise that, as one of the most profitable sectors in the world—
Proceedings suspended from 18 : 30 to 19 : 30
Just to conclude, what we have here is one of the most profitable industries in the country, with record profits. We had bank executives making $300 million in bonuses last year alone. We have an industry that gets a taxpayer funded guarantee—the too-big-to-fail guarantee. There are not many businesses like it. If things go badly, the taxpayer stumps up the cash. If things go well, the banks cream it off in record profits. It is appropriate that the banking sector do its fair share.
If we are going to pay for schools and hospitals, if we are going to pay for welfare and if we are going to pay for all the things that we think are the foundations of a decent society, then it is fair and just that the banking sector contribute to the prosperity of this nation. That is why the Greens led the charge for the establishment of a bank levy on the big four banks. It is why we are now pleased to see that our policy has been adopted by the government, and it is about time we see the government move on some of those other key areas that we have long argued need to be reformed, such as negative gearing to end the huge taxpayer funded handout that goes to people not to buy their first home but to buy their third, their fourth or their fifth home; capital gains tax reform, again for the same reasons; ending the huge subsidy that goes to the fuel industry; and having a Buffett rule so that millionaires actually start paying their fair share of tax. It is only by recognising that we have to raise revenue to fund the things that Australians want and deserve, like Medicare and a well-funded public education system, that we will begin to make the progress we need to make towards a fairer and more decent society.
I will be supporting the Major Bank Levy Bill. But, having said that, there are some issues relating to the bill which I do not like. I despair as a Liberal that we are taxing different companies differently. I think taxation should be even across the board. Carving out five or six particular companies for an additional levy seems to me to be not appropriate. I am not going to go into that. Those with much more learning than I have would give you a wonderful treatise on why that is not appropriate, suffice to say that I am uncomfortable with that, and I know that many in my party are.
It also gives a sort of go-ahead for other governments, not our government, to introduce things like a super profits tax—picking on certain companies and picking on certain individuals and not others—and that concerns me. While we have a Liberal government, I am relatively satisfied that that will never happen. But there will not always be Liberal governments, and I am concerned that, when that does happen with other governments, it will make it rather hypocritical for us to say, 'You can't do that.' So that is a political reason. I have mentioned the policy reason ever so briefly, and, as I said, others could expand on that more eloquently. That is not the purpose of my being here today.
In spite of those misgivings, I am persuaded that we do need to repair the budget, and I think the purpose for which the levy was introduced is a valid one. If we can do anything to repair the budget mess left to us by the Rudd-Gillard government then we should look at it, even though it is done in a way which, as I said, I and many other Liberals do not really like. But the idea of using this additional money to bring the budget back into surplus to repair Labor's mishmash of the country's finances is probably balancing more towards me supporting this than against my natural concern about it. Also, there is the argument that this is—put in another way—a payment for the licence which Australian taxpayers give the major banks by way of a permanent guarantee in times of difficulty. Certainly at the time of the global financial crisis it was the taxpayer-backed guarantee that the Australian government was able to give the Australian banks that kept us relatively free from any major catastrophe. The argument is that this is some recompense by the banks for Australian taxpayers against that guarantee that certainly protected Australian banks at that time.
Before I go on to the main purpose of my speech today, I indicate that, again, there has been a bit of talk about royal commissions. I do not think they achieve anything. They get a lot of headlines and a lot of good, easy stories for the media but, regrettably, they achieve very little. I also make the point, in responding to some of the previous speakers, that profit is not a dirty word. The fact that banks make money, and make it out of me as a borrower, is the way that the world goes around. That is commercial activity; that is business activity. Good luck to them if they make big profits if they run their businesses well. As a customer of a bank, I have alternatives that are always open to me.
I also remind senators who are howling loudly about the profits that banks make that, of course, those profits go to shareholders. Many shareholders are mums and dads around Australia that we all know, and perhaps the greater number of shareholders are superannuation funds that invest in major corporations. Shareholders expect banks to make profits—the bigger the profit, the bigger the shareholding revenue and dividends to shareholders. That means that superannuation funds, which we all subscribe to, are investing in businesses that are making money and making good profits. That is what we all want as potential superannuation recipients in the years to come. When senators get up and rubbish the banks for the profits they make, they should remember that a lot of those profits go back into the superannuation funds that are trying to make the nest eggs of every retiree even better. Many people in their later years of life have direct shares in the banks and they look forward to the banks making the best possible profits. I mention these couple of things in passing.
I wanted to participate in this debate—and I will briefly take part in the committee stage later on—because of some of the recommendations of the Senate Economics Legislation Committee, of which I am a member. Last Friday, the committee heard from all the relevant interested parties that we could fit in. The committee, which has a government majority, made five recommendations. I am yet to hear whether the government has adopted those recommendations. A journalist rang me not long before the dinner break and said he had heard the government was not going to make any amendments to this bill, which to a degree does distress me. Unfortunately, Senator Cormann is not here, although I appreciate that Senator Fierravanti-Wells, who is the minister at the table, will no doubt pass this on.
I find it incredible that the government would not support the committee's unanimous recommendation 4. I repeat: this is a committee with a government majority and two Labor senators as well, and all agreed with the five recommendations that have been made. Recommendation 4 says that the legislation should be amended so that the Treasurer may, on the advice of APRA, suspend the application of the levy to any or all deposit-taking institution—the banks—in extreme financial or economic circumstances. Hopefully, there will never be extreme financial or economic circumstances that might make it necessary to refer to this particular brute provision, but it was raised by witnesses at the hearings. The committee, in its wisdom, thought that this was probably an amendment that the government could easily introduce; it would give the Treasurer some discretion to remove the levy in some extreme financial or economic circumstance. It would cost the government nothing, but give the Treasurer that additional flexibility which may be needed should those circumstances ever arise. As I said, I hope those circumstances never will arise, but if they did it would give the Treasurer that power. I think he would have thought that was a very reasonable recommendation that the government would have grabbed with both hands and taken on board. In the committee stage I will be asking whether the government intends to adopt that—and, if not, why not.
All of the recommendations were thought through carefully by the committee. The committee did not make the recommendations just for fun; they made them because they thought they would improve the bill. The final recommendation of the bill says that 'subject to consideration of the other recommendations, the committee recommends that the bills be passed'. So the committee adopts the bills and says they are appropriate for all the reasons mentioned in the committee report and in the second reading speech. I would hope the government will seriously consider them.
Recommendation 1 says:
The committee recommends a review be conducted by the Senate Economics Legislation Committee—
the same committee that has made these recommendations—
in a minimum of two years.
So in two years time the same committee would have a look at that bill to determine, as stated in the recommendation, the efficacy of the policy in fulfilling its stated objectives—that is, is this levy actually going to repair the budget? Because that is what it is all about; it is not just another tax; it is there specifically to repair the budget. So the committee thought it might be a good idea for someone to have a look in two years to see if it was actually going towards doing that. We could have recommended that some independent authority or some other organisation might have a look at it; but we thought it was probably safer to send it back to this committee, so ably chaired by Senator Hume, to see if it was fulfilling that obligation. The committee recommended that, in that two-year review, the committee would also have a look at the effect on competition in the Australian banking market. So there was a lot of evidence given about why this did not apply to international banks, why it did not apply to what I would call the smaller banks. There were reasons for that, which were explained by the department and others. Whether the submissions made to the committee were valid or not, it is something the committee thought we should look at again after the scheme had been in operation for two years.
The third dot point in the recommendation was about whether the levy is required in perpetuity, which it currently is; this legislation puts the levy there in perpetuity. The recommendation was that the committee should review whether the levy is required in perpetuity, including the need for a further review at that time that the stated objective of the levy is achieved—that is, when the budget has been repaired.
For the reasons I mentioned earlier, I am a bit uncomfortable with the idea of the bill, but if it is all about repairing the budget then I will go along with it. But once the budget is repaired one would think: if the principal underlying reason was to repair the budget and then it achieved that goal in four or five years time, why do you keep the levy going? What was urged upon the committee by several of the witnesses was that there should be a sunset clause that would say that, once the budget is repaired, the legislation stops. But the committee thought a better way to approach it would be to have a review, see where that is going, see whether the levy was repairing the budget and then, if it was, look at whether this additional levy would stop once the budget was repaired. I thought that was a fairly reasonable recommendation of the government. It does not really cost the government anything except having a committee meet in two years time to have a look at those issues and to see whether in two years time the committee thinks the levy works properly, is doing what it was set to do and it was necessary to continue it without any time limit. I would certainly hope that the government might seriously look at that and I would be interested to hear the minister who is taking this bill through actually comment upon that in the committee stage.
The committee also recommended in recommendation 2 that the Treasury should closely examine issues relating to the technical aspects of the bill to determine if changes are required to avoid double taxation and/or to narrow the liability base. There was some evidence given to the committee—I suspect most other committee members understood that a lot better than I—but, whilst we could not agree that there were technical aspects of double taxation issues that needed to be addressed, the evidence given to us suggested that there was the possibility that in some cases there might be that sort of taxation. Accordingly, the committee, without being definitive on that, did ask the government to perhaps look at that. I hope that, when the minister responds at the end of this debate or in the committee, he can indicate whether those concerns about double taxation were in fact real or otherwise.
The committee also recommended in recommendation 3 that Treasury provide a greater explanation of the rationale for the method of liability calculation, which presently excludes foreign banks and specifically provides an explanation as to why Macquarie Bank is subject to the levy while foreign based competitors are not. Again, evidence was given to the committee by, obviously, Macquarie Bank and by the Bankers Association and all the individual major banks, who urged the committee to apply the same levy to foreign banks who do collect deposits in Australia. The suggestion was that they should be levied not on their deposits outside Australia but on their deposits inside Australia. There were reasons given by the department and others as to why that was not appropriate and not in the best interests of the goal being sought by this particular piece of legislation. But the committee thought that it would be useful for the Treasurer to provide a better explanation around those issues.
I will leave my contribution there, but I am asking the minister to indicate why recommendation 4, which clearly cost the government nothing and which gives the Treasurer a little bit of extra flexibility, in the hopefully unlikely event of an extreme financial or economic circumstance arising—I hope that the government would adopt that, and I would be very keen to hear why the government would be opposed to recommendation 1, which was the one about having a review in two years. So while I support the bill for the reasons I have mentioned, I also think that these recommendations are appropriate and should be considered by the government, and I will be interested to hear the minister's response.
Here we go again! Already today the Senate has dealt with one great big new consumer tax, which of course put the price up for things that consumers need and have been buying from overseas. Now we have a great big new bank tax. You can tell from my opening that I am opposed to it. I am hoping you can detect that I am opposed to it. I do want to pick up on one thing that Senator Macdonald said, which is that those in this chamber who decry the fact that the banks are very profitable have lost sight of the fact that there is only one thing worse than a profitable bank, and that is an unprofitable one. Do we really want a banking industry that does not make money? The effects and impacts of that can be seen in America, where the banking industry, by its own design and fault, cost the taxpayers over there, I guess, a trillion dollars or more. The executives got very rich; the banks were recapitalised; the government has not benefited from it and the consumers have not benefited from it. So I think it is entirely reasonable for a bank to make profits. They deal in lots of money and they deal in a very important space. They make a lot of money, quite frankly, but they also pay their fair share of tax like every other corporate in this country.
What is next? This is where you have to apply principle to these things They make too much money in the banks, so you want to add a super profits tax on them, just like Labor did with a mining tax. Do you remember, Mr Acting Deputy President Sterle, that your colleagues on the other side introduced a mining tax, which was to capitalise on the super profits from the mining industry. Of course it never raised the money, and the expenditure is still with us today. It is the only tax that ever actually lost money, I suspect. That is its rather remarkable record, and it is little wonder that those on that side of the chamber are supporting the bill before us today.
However, I am amazed—incredulous, quite frankly—that the once-proud Liberal Party, of which I used to be a very proud member, has been reduced to chasing billions of dollars from industries and targeting specific industries because they cannot buttress their budget bottom line in any other way. I have given suggestions previously about how they could save money, but instead they have chosen the tax and spend way. What is next? Coles and Woolworths have been very, very profitable for a very long time in this country. Why not have a supermarket tax? Why not go down to Wesfarmers, a very profitable company, and whack an extra super profits tax on that. Or the fuel companies that happen to be making money, or the gambling companies. You can keep going and going and going. But about 60 per cent of corporate tax is paid by about 0.1 per cent of the companies in this country. They are paying a massive amount already, but because it is popular and because very few people in this place will stand up and defend the principle attached to this—it is not because I like the banks, it is not because I think they are doing a great job by the consumers—they are making as much money as they possibly can, but it does not mean that we should be slugging them another $6 billion or thereabouts, which they will claim as a tax deduction, to prop up the government. The government has enough money already. This tax is going to hurt individuals, as it always does. The corporates will claim it as a tax deduction, so you will not get your $6 billion—it will probably end up being around $4 billion or thereabouts—but customers will invariably be asked to make up the shortfall. It might come in a centre transaction, tweaking of an interest rate here and there or putting a new fee onto something, but the banks will do that because their job is to act in the interests of their shareholders. For those in this place who are naively or blithely unaware of what happens in the reality of markets, the moment—in fact, before this bank tax was even announced, the share price of the banks fell considerably.
I hear the interjections. I understand there have been calls for inquiries as to why insider trading takes place and all that, and I am not defending that, but the simple fact was it obviously did leak and then it was compounded by the announcement on the day itself. Following the day itself billions and billions of dollars were wiped off the share price of banks, because that share price is a product of their profits. That capital is gone. Who owned it? Sure, there were some internationals. According to your own team, or Mr Leigh, it is some sort of conspiracy and the Bilderberg Group, through the National Bank nominees or someone, owns 90 per cent of Australia's corporates. That proves how naive and foolish they are on the other side. But the fact is that a lot of these bank shares are owned by self-funded retirees, super funds and other individual investors, who have all suffered immeasurably already as a result of this bank tax. It is going to transmute itself into lower dividends until the banks can claw it back from consumers.
We have a government policy which will probably achieve less revenue than it stated and set out to. There is nothing unusual about that. We know Treasury produce a number of figures, and the governments choose the ones they think most suit their agenda. But more importantly, it promotes a very dangerous principle. In this case it is, 'If you are too successful, the government is going to come for you.' If you are unsuccessful—let me give you another example—like wind farms or solar thermal plants or whatever, and your technology does not stack up, the government will throw money into it. They bag and penalise the winners to subsidise the losers. That is inane, it is foolish and it is probably why we have a circumstance where this country is over $500 billion in debt through the governance of the last 10 years. There is no sign of that changing; in fact they have given up. They are saying, 'We'll take more money out of the economy,' and that means the economy itself will be diminished as a result, because money that flows from private industry or individuals into government coffers does not produce the same results as it would if it were left in private hands.
If you have any doubt about that, think about it for a moment. The banks cumulatively make a significant amount of money: the NAB makes $3 billion, Westpac about the same, the Commonwealth makes about $5 billion, Macquarie makes a couple of billion in a good year, and so on. All of those profits, or all their revenues, in actual fact pale in comparison with the revenues of government, yet this government with its $400-odd billion worth of revenue every year taken from taxpayers—an ever-diminishing number of taxpayers, might I add—still cannot eke out a profit every year. In fact, it spends $50 billion, $40 billion or whatever it is in any particular year more than it takes—I will not even say earns—from taxpayers. That demonstrates how poor the public system is. The government system is less accountable, less robust and does not generate jobs. It is a weight, a yoke, around the neck of the Australian people. It is doing too much and it does not do it well. We would be much better served allowing companies, through lower taxation, to invest in this country, to develop new industries, to provide new jobs and allow individuals to keep more of their own money.
I thought these things were taken for granted on the government side of the chamber, but the coalition seems to have jumped the shark, in Happy Days parlance. They have become increasingly desperate for acceptance in the marketplace and they think imitation is not only the sincerest form of flattery but that it will somehow make them more popular, so they have chosen to imitate the Labor-Greens alliance. I find it extraordinary. You will never be able to out-tax the Labor-Greens alliance. You will never be able to outspend the Labor-Greens alliance. You will never be able to out-class-warfare the Labor-Greens alliance. Yet that is precisely what they are trying to do. There is one minister in this place who says that the coalition has become the party of slightly fewer new taxes or the party of slightly lower taxes than the other. There is no meaningful or substantive difference any more—it is Tweedledum and Tweedledee—and business as usual is not serving this country nor this parliament as it should.
I stand here taking a principled position. It is very easy to beat the banks up and say that they should give us more money. It would be popular to people out there, superficially, just as it is popular for governments to target anything that people overwhelmingly think is somehow unfair or manifestly wrong. But we are next. Are we just going to wait for someone to make a successful business and then go after them and say, 'You are making too much money and we are going to take it from you.' We should be celebrating people making money in this country. Yes, they should be paying their fair amount of tax and, yes, they should be doing their fair share of corporate lifting, but you do not chase them for additional taxes simply because you are unable or unwilling to make the decisions that are necessary.
If you really want to target it, why not look at the extraordinarily profitable superannuation administration sector. They say they are not-for-profits but they make a pile of money administering a government mandated savings scheme in which the government at the same time has successfully undermined any faith or integrity. It has enriched union bosses and it provides a job for people like Mr Shorten, before he gets into parliament to supplement their union egos and union salaries. Why not target something like that? It is a reasonable question. I do not particularly support it, because I think the principle is wrong. But once you overturn this rock and look underneath it how many more rocks are you going to look at and turn over?
I say: shame on the government for imposing this tax and shame on those who are going to support it. But at least in a principled or clinically pure manner we know the tax and spenders on the other side have always advocated in this space. There has never been enough money for them. There have never been enough wasteful programs for them to enact. But I am disheartened, and the Australian people should be disheartened, that that infection has crept over to, and taken over, the government benches. I will be voting against this bill.
As a servant to the people of Queensland and Australia, I rise to decry this lazy government. The Major Bank Levy Bill 2017 is just window dressing. It is avoiding the clear problems. At Pauline Hanson's One Nation we are certainly no fans of the banks. We have proclaimed for some time now that a royal commission is needed into the banking sector. We so far have been unable to have that passed. We have been working to get a Senate select committee inquiry into lending to rural production customers, and I have been selected by Senator Hanson to chair the committee that she managed to negotiate.
We have also become a co-sponsor of the commission into banking, and we are proud to join Senator Whish-Wilson in that initiative. But bank bashing itself does no good if it simply avoids the core issues. This is yet another example of policy on the run, as we have come to see. This will be passed onto customers. I will read some quotes from the Centre for Independent Studies' study of this bank levy, but, before I do, let us look at an overview of what is happening in our country.
The cost of living is foremost on people's minds. Last year incomes rose 1.9 per cent while the cost of living rose 2.1 per cent. That is a backward step for everyday Australians. Real issues include energy prices skyrocketing. Senator Brandis today said that, under the Liberal Party, prices for energy are stabilising. Oh, really? In South Australia, since the federal Liberal Party came into power prices have risen from 5c per kilowatt hour to 16c. That is over three times more! That is not stability. In Victoria, prices have risen from 5c per kilowatt hour to 11c, a more than doubling. Queensland has doubled from 5c to 10c. That is not stability; that is ignorance.
Look at overregulation. When I listen to constituents in Queensland, overregulation is their second-most mentioned hurdle. Overregulation is killing small businesses, killing personal enterprise, choking farmers, choking small businesses and choking individual income earners.
The third issue—hardly any surprise—is tax. Tax has gone out of control in this country. Why do we tax payroll? We all know that when we tax something it decreases the use of that taxed object. So why are we taxing payroll? Do we really want to decrease payroll? Then there is the PAYE tax. That is also a tax on employment. And what do we see from the government and from the opposition? They blame the Senate for not being able to tackle the real issues. That is a lazy approach.
Government is not a right. Just because people get elected into the government benches, that does not mean they get whatever they want. That is not their right. The opposition's job is to oppose the government and come up with better options, and the crossbench senators' job is to continue to work that process even stronger and make something workable from the opposition and the government.
I will give you an example of a first-class international leader from not so long ago who inspired me. In 1980 I was fortunate to be in the United States when President Reagan was inaugurated. I watched that man. He did not complain about the Democrats having the majority in the lower house when he was a Republican president. No, he didn't. He rolled up his sleeves and got to work. He got the data, and he made a presentation to every person in America through the TV one night. All he did was take five or so graphs on an easel—simple graphs, simple language, everyday connection with the real people across America. And what happened? As a result of his forthright leadership and his understanding of the basic issues addressing every American, 40 southern Democrats jumped ship and joined the Republicans to vote in favour of President Reagan's economic initiatives.
So that is cost of living. What about the fact that governments continue to keep pushing costs onto people through mad policy? The Murray-Darling Basin Plan, spending billions—$13 billion and counting—of taxpayer money to buy water rights, to sell water and, eventually, to put it in a foreigner's hands is a policy initiated by the current Prime Minister and perpetuated by both the Liberal Party and the Labor Party. I have just given you an example of energy policy. We see regulation causing the destruction of our energy sector. There is no more vital sector in this country, no more vital sector in an industrial country, than energy. We are seeing the de-industrialisation of our wonderful country. We are seeing regulations choking the energy sector. The problem is clearly regulation. What did the Finkel review say: more regulation is the solution. What a dishonest mess. Then we see climate change policy that contradicts empirical evidence. The real world, hard measured data is contradicted by our policies. All of these things and many, many more are raising costs directly and indirectly through the impost of government.
Let's turn to post offices and how this government and its predecessors have been screwing people who are trying to do a good job in this country and finding it very hard to do so. The CEO of Australia Post recently resigned after receiving salary of over $5 million a year and then a payment of $2 million for severance. He reportedly received $8 million in his last year. Then we see the salaries of the heads of departments and agencies right across federal government—$400,000; $600,000; $680,000; $800,000; $900,000; $1 million; over $1 million; and, for Ahmed Fahour, many millions of dollars. When we delve into that 1.9 per cent increase in incomes, we see that those in the private sector got an increase of 1.8 per cent, and they paid for an increase of 2.4 per cent in the Public Service. Then what do we see? We see post office franchisees in my office last Thursday, detailing that in the commitment that Australia Post has given them they are entitled to receive $1.38 for 20 minutes of work, because the banks have left town and they are now the bankers' agency. It is 20 minutes work for $1.38 pay. That is not sustainable. That is disgraceful. And then the CEO makes out like a bandit.
Then we see welfare. The abuse of welfare is on the lips of so many Australians. Senator Hanson has been proclaiming her national identity, the Australia card. A reputable economics consultancy has recently valued it as saving more than $4 billion each and every year once it is put into place, and then it would also save money in health. It would increase revenue by preventing people's attempts to avoid paying their fair share of tax and fulfilling their responsibilities. It would save many more billions of dollars than this initiative with the banks.
Fourthly, looking more broadly, there are the states and what happened to competitive federalism. Competitive federalism was designed by the forefathers of our Constitution to put in place a check against a rampant central government. We now have rampant central government in our country, sadly. It is running out of control. In fact, 20 years ago, the states found that they were getting more than 50 per cent of their revenue from the federal government; it was under federal control. Let's listen to the people. The councillors and deputy mayor at Balonne Shire Council said in February that 73 per cent of the Balonne Shire Council's annual revenue comes from the federal government, with no security of ongoing payment—just conditions that change periodically. So who is running the Balonne Shire Council? The federal government. Who is running the states? The Murray-Darling Basin covers 80 per cent of New South Wales. Who controls the water rights? Who controls the land rights—the property rights?
Who controls the income of so many states and local councils? It is the federal government. So we now have a de facto all-powerful federal government.
We have also seen a need for looking back in our history, because there are many solutions we can find. If we look to the Commonwealth Bank, which was formed in 1911 after the legislation passed by the Fisher Labor government, we saw Australia flourish and blossom under that initiative. We saw Denison Miller invest money through the Australian people in developing Australia's infrastructure, agriculture and transport, giving us access to international markets. We now see the public Bank of North Dakota. That is right—an American state has a public bank. And it is one of the very few banks that has continually made profits ever since its inception. It is continuing to give cheap loans to its farmers and its business people. It is continuing to put dividends back into the hands of the state governments, back into the coffers of the people of North Dakota. It is much like the Commonwealth Bank.
So let's get into some more details after that overview and think about some of the comments from the Centre for Independent Studies in Sydney: 'Who pays the levy? Well, the banking levy will most likely be passed on as increases in mortgage and business interest rates. This expectation is based on overseas experience, including in research cited by the government and an analysis by Australian experts. As a result, the levy will act as a tax increase on households already afflicted by flatlining real wages growth and ongoing increases in personal tax, including through bracket creep. The ratio of personal tax to gross domestic product has been increasing by about 0.3 percentage points per year cumulative since the global financial crisis. An increase in business borrowing rates will dampen business investment, which is already at near-record lows as a share of the economy and is forecast to decline further.' Only a fool or a cynic would laugh, but that is what we hear.
Then we see based on an IMF study that, according to the Centre for Independent Studies, Australia's levy could reduce GDP by about $1.7 billion per year, a substantial impact compared to the revenues raised of $1.5 billion to $1.6 billion per year. In the executive summary, the Centre for Independent Studies says that the bank levy is likely to feed through to higher mortgage and interest lending rates. As I have said, this will hit many households already facing tax increases. Secondly, if the big banks have substantial market power, as the government already implies, the banks would just use this power to ensure the levy is fully passed on to customers. We can not have it both ways. They either have substantial market power or they do not. If they have substantial market power then they will just pass it on.
The government, thirdly, cannot use international experience to justify the levy, as many other developed countries have chosen not to implement a levy on borrowing. Fourthly, the levy will help mortgage customers only if they switch to smaller banks and then those smaller banks cut mortgage rates. The government has provided no evidence that this will occur. The process for developing the levy breaches numerous government requirements for best-practice regulation and consultation. That could be an echo in this chamber. How many times do we see government requirements for best-practice regulation and consultation just bypassed?
Next, the harmful impact of the levy appears small, but this in no way justifies the levy. A bad policy is bad, no matter what its size. And the levy rate could easily be increased in the future to have a large adverse impact on households right across the country. Former Prime Minister John Howard just two weeks ago was quoted in the newspaper on a Saturday saying that he is appalled at energy policy, and he specifically referred to the Renewable Energy Target favouring intermittent energy sources.
Who introduced the Renewable Energy Target? It was former Prime Minister John Howard's government. Who accelerated it? That was the governments of Kevin Rudd and Julia Gillard. These are both parties that have been responsible for irresponsible government in the last couple of decades—in fact, since the 1940s. And who pays? Mums and dads, boys and girls, families and small businesses right around this country. The Centre for Independent studies concludes:
Given these flaws in the levy, it should be abandoned in its entirety. If however the levy is not abandoned, it should be subject to a much more detailed inquiry over the coming year, with a consequent delay in the start date. This detailed inquiry would enable the government to meet its own guidelines for best practice regulation, ensure unintended consequences are known, if not addressed, and allow the levy’s interaction with other work to be included—including interactions with changes in prudential regulations, and the inquiry by the PC into competition in the financial sector.
We need to face up to the real issues. The real issues are the abysmal lack of accountability in governance from the central Commonwealth government at the moment in this country. We need to face up to the enormous and rapidly increasing cost of living burden on every person in this country—every working man and woman, and their kids. And we need to face up to the severe, daunting challenges for economic security that people in the government and the opposition just seem to turn a blind eye to.
Our economic security is under threat. Until 10 years ago, energy prices for the last 170 years, since the industrial revolution, have continually decreased in real terms. That is the secret to an increasing standard of living for 160 years. In the last 10 years, through insanity and contradiction of the empirical evidence, we have seen policy after policy destroying our economy, destroying the key energy sector, destroying livelihoods, killing jobs and sending them overseas, where they are increasing real pollutants—particulates, sulphur dioxide, nitrous oxide. What is happening in our country is insane, and the people who are paying for this insanity are everyday mums and dads. That is why we will be opposing this legislation.
It is tragic that this Major Bank Levy Bill 2017 is supported by the Liberal government and the Labor opposition. Let me be clear: it is absolutely opposed by the Liberal Democrats. This is a tax on banks, and not even all banks—only the biggest banks. I will give you three sound reasons it should be thrown out. First, it amounts to redistribution. The government hopes to collect $6.2 billion from this tax over the next four years so that it can continue to provide funds to welfare recipients and public servants. Some of this money would come from bank shareholders. Even if you subscribe to the view that money is better in the hands of the poor rather than the rich, you should remember that bank shareholders range from Australia's rich list to anyone with funds in superannuation, including low-income Australians. And we should remember that recipients of welfare in Australia are more often high and middle-income earners than they are low-income earners and that Australia's public servants are invariably high-income earners.
Some of the $6.2 billion that the government hopes to collect from this bank tax would come from bank employees through reduced remuneration over time, yet bank employees do a useful job of intermediating funds, meaning that they direct money from deposits towards investment ideas that stack up. By contrast, most public servants do not contribute in any economic sense, and some of the $6.2 billion that the government hopes to collect from this bank tax would come from bank customers who will receive reduced interest on their deposits and pay higher interest rates on their borrowings. Banking is not a sin that warrants a new sin tax. The welfare recipients and public servants that this $6.2 billion is earmarked for do not deserve the money more than the banks' shareholders, employees and customers. Bank shareholders, bank employees and bank customers do not deserve this tax. It is their money. There is no justification for redistributing bank money. It is better off where it is.
Beyond the question of redistribution, I oppose the bank tax because it will change the way we do things for the worse. The bank tax will make people less inclined to finance banks, meaning that less bank lending will occur, fewer business ideas will get off the ground and fewer private sector jobs will be made. Perversely, this will lead to more pressure to grow the ranks of welfare recipients and public servants and the downward spiral of a shrinking private sector and burgeoning public sector will continue.
How the banks go about their business will change, too. International experience cited by the government suggests that banks may increase the ratio of their capital to lending. The government says this is a good thing, but this is curious, because it implies that the minimum capital levels required by the prudential regulator are too low. We should be weary of suggestions that it is always good to lift the ratio of capital to lending. The people who think that are mostly the same people who believe that fractional reserve banking is a massive Jewish conspiracy. The government also acknowledges that international experience suggests that a bank tax will encourage banks to pursue riskier lending. Perhaps banks facing an extra tax when they borrow funds will borrow only if the returns from on-lending are that little bit higher.
The mere task of paying and collecting the bank tax will also divert resources and time. To pay the tax, each of the affected banks will need to undertake systems upgrades costing around $3 million each. This is money down the drain. The banks will have to hire more lawyers and tax accountants to walk the line between paying too much tax and falling foul of a new antiavoidance provision. This provision will say it is against the law for a bank to do something that a court subsequently thinks is for the sole or dominant purpose of getting a tax benefit. Putting taxpayers in this limbo land position is irresponsible. The tax office and prudential regulator will no doubt have to assign staff to get their heads around this new tax, too. That is more people employed in unproductive activities. If this keeps up, no-one in this country will be employed to make anything useful.
It is incumbent on me to slay some myths about the wisdom of putting a tax on big banks but not small banks. A lot of people in this place say that they stand up for small business, but I seem to be the only person in this place who also stands up for big business. More should do so, because it is big business that is more productive, that is innovative, that generates higher paying jobs and that employs more Australians than small business. Every big business began as a successful small business anyway.
The decision to tax some banks and not others creates inherent problems at the boundary. It unfairly treats banks that are just over the threshold compared with those that are just below the threshold. This is particularly the case given that a bank will be taxed on all the relevant liabilities, not just those over the threshold. This boundary issue may not be urgent now, given the current make-up of the banking sector, but it is foolish to enact a permanent law based solely on current circumstances. The bank tax also discourages small banks from becoming big banks.
The government justifies its attack on big banks by noting that they have lower costs, but it makes no sense to put a tax on the businesses in an industry that have lower costs. This just discourages striving for lower costs and rewards waste. Higher costs across the industry will be the result. The government justifies its attack on big banks by noting that the big banks charge higher prices and still maintain market share, but this suggests that the government thinks the customers of the big banks are stupid and will not shift banks even though it is in their interest to do so. If that is the case—and I do not believe it is—then putting an extra tax on big banks will not change it. It will just punish those who are loyal to the banks for other reasons, which is hardly a good basis for public policy.
The government also says that its bank tax is fair because big banks pose risks to the financial system and the economy. This is not true. The primary victims of the collapse of a big bank would be the people who choose to do business with that bank. Beyond these costs, there would be significant system- and economy-wide problems only to the extent that the government poorly manages the payments system between banks and only to the extent that the government does something as stupid as bailing out a failing bank. And basing policy on the social costs from big banks without considering the social benefits from their service of redirecting funds from savers to borrowers is piecemeal.
If we take into account the social costs and benefits from big banks, then big banks would be more deserving of a special subsidy than a special tax. I oppose the bank tax. It is unwarranted distribution. It will change the way we do things for the worse. Taxing big banks but not small banks makes no sense. With bill after bill that passes this place with Liberal and Labor support, Labor is drifting dangerously into jingoistic self-destruction. The Liberal Democrats are determined to call out this mad descent. For the record, we have never received any donations from the banks—more's the pity, although we live in hope! But my point is this: the Liberal Democrats are a party of principle, and this bill is just wrong in principle.
It is with great pleasure that I am rising to speak on the Major Bank Levy Bill 2017, because it is a rare day that as a Greens senator I get to speak on legislation that is Greens policy that has been adopted by the government. The idea of a levy on the banks has been Greens policy for over a decade, and there is a very simple reason: this money that is in some way going to be recouped from the banks is in fact money that belongs to the people of Australia.
Since the global financial crisis, the government's implicit guarantee to the big five banks that they are too big to fail, that if anything happened to them the government would come in behind them and make sure they do not fail, has been worth real dollars, real cash, to the banks. The estimate of how much that implicit guarantee is worth to the big five banks is somewhere around $3¾ billion to $4 billion a year. That is money that, if anything happens to them, we will come in and support them. It is our money that the banks are benefiting from. And it is a benefit that those big five banks have that the other banks do not have. There is a very clear logical reason that we, as the people of Australia—and the government of Australia—should be recouping some of that value from those big five banks.
So this bill today is going some way to recouping that, in the order of $6.2 billion over the next four years. As Greens we reckon that, in order to really be recouping it, it could be twice if not three times as much. But look, it is a start. And that $6.2 billion is an important piece of revenue. The issue we have in terms of balancing the budget in this country is that we get told a lot that we have a budget crisis, but we do not have a budget crisis; what we have in this country a revenue crisis. There are many, many opportunities we should be taking up to be raising revenue, to be able to spend it on the critical services, the critical infrastructure, the critical resources that we need as a country. So, if there is $6.2 billion that is there and that is fair to be gained from the banks, then getting that $6.2 billion is absolutely the right thing to be doing.
Let's have a think about the sorts of things that $6 billion is being put towards and that, if we doubled or tripled it, could be put towards. This week we are focusing on education funding. As you know, we are in negotiations as to how much money is going to be spent on schools. This is not money to be frittered away on fanciful extras in our schools; this is critical money that is needed by our schools to make sure every student in this country has the resources they need, to bring every student up to the level that has been determined as being fair—the school resource standard. That is the sort of thing we need money for. That is the sort of thing this $6 billion is being put towards.
If we were raising more money, if we were having this bank levy at a level that the Greens feel would be justified, we would have money we could afford to be putting towards higher education so that we do not have to have these cuts that are being imposed on higher education. I was talking with friends at the weekend who told me how tragic were the cuts underway at Victoria University in Melbourne, where 168 academics are losing their jobs and there are large class sizes because resources are not going into higher education. That is the sort of measure we should be supporting with extra revenue.
We should be raising enough money to make sure we can provide quality health services and sure is working effectively. If we had more revenue coming in, we might be able to continue and expand, keeping dental care included in Medicare. Again, everybody in Australia knows it is ridiculous that the rest of our body is being covered by Medicare—but not the problem of the mouth! Dental care should absolutely be included under Medicare. But we are told, 'Oh no, we can't afford to do that!' But with extra revenue coming in, that is the sort of measure we would be able to afford.
Unemployment benefits have stagnated, flatlined, for so long. People on unemployment benefits are now living in poverty. They cannot afford to rent a house anywhere in any of our major capital cities. Imagine if we had the revenue to increase unemployment benefits to make sure every Australian has the resources to live a life of dignity. We could put solar panels on all social housing, on all low-income houses. That would be a really important thing for reducing the energy bills of the most vulnerable in our society. We could pay for major infrastructure projects. The $6 billion we are talking about today could pay for a major rail project in any of our cities. These are all critical projects that we need to have the revenue to pay for. So it is very pleasing that we are at least moving forward in some way and recognising that there are legitimate, fair responsible ways of raising that revenue.
The other issue raised in debate today is that this levy is a very significant impost that is going to affect the banks and potentially be passed on to their customers. My colleague Senator Whish-Wilson pointed out what a furphy this is. The banks have just retained their AAA credit rating, and the bonuses of the bank CEOs add up to $300 million a year, which is a third of the amount being raised by this bank levy. As I said at the beginning, this our money. The banks can afford to pay it, and it is a legitimate thing for them to pay it. There is a lot more that needs to be done to make our banks socially responsible and regain their place as top-quality corporate citizens. We have been doing work to get a parliamentary commission into the banks, which went through the Senate last week. Once that gets up, or a royal commission gets up, it will shine a spotlight on what needs to happen for the banks to lift their game.
It is worth noting that there are only two banks in Australia that are members of the Global Alliance for Banking on Values. Notably, neither of those two banks is one of the big five. The mission of the Global Alliance for Banking on Values is to use finance to deliver sustainable economic, social and environmental development, with a focus on helping individuals to fulfil their potential, and to build stronger communities. I reckon that is a pretty good mission for all banks. It is the sort of mission that I think all banks should be able to sign up to. I look forward to some of our big five banks deciding that they too can join the two banks in Australia that are members of that global alliance. At the moment Bank Australia and Teachers Mutual Bank Limited are the only two banks in Australia that have signed up to that alliance. There is a long way to go for the banks. But what we are debating today—this decision to have a levy on the banks—is a really good start towards getting the banks, and those big five banks in particular, to pay their way.
I look forward to seeing the government adopting other Greens policies in the future. It would be a really lovely thing to see, but it is probably too much to ask for. We will put issues like reforming negative gearing and the capital gains tax discount, and ending fossil fuel subsidies on the agenda as well, and hopefully we might get the same sort of support that we now have for this bank levy. In the meantime I am very pleased to be joining my other Greens colleagues in supporting this bill.