Monday, 19 June 2017
Major Bank Levy Bill 2017, Treasury Laws Amendment (Major Bank Levy) Bill 2017; In Committee
by leave—On behalf of the Nick Xenophon Team I move the requests on sheet 8166 together:
(1) Clause 4, page 3 (lines 7 to 9), omit subclause (2), substitute:
(2) The total liabilities amount for a quarter in relation to an ADI is:
(a) if the ADI is a foreign ADI (within the meaning of the Banking Act 1959)—the amount equal to the total liabilities of the ADI and its related bodies corporate (within the meaning of the Corporations Act 2001) for the quarter (excluding any liabilities to each other); or
(b) in any other case—the amount equal to the total liabilities of the ADI for the quarter;
as reported under an applicable reporting standard.
(2) Clause 5, page 3 (lines 20 and 21), omit paragraph (2) (a), substitute:
(a) the amount equal to the total liabilities of the ADI for the quarter, as reported under an applicable reporting standard; and
(3) Clause 6, page 4 (line 18), omit "paragraph 5(2) (b)", substitute "(5) (2)".
(4) Clause 7, page 5 (lines 19 and 20), omit "subsection 4(2), paragraph 5(2) (b) or subsection 6(2)", substitute "subsection 4(2), 5(2) or 6(2)".
(5) Clause 8, page 5 (line 28), omit "subsection 4(2), paragraph 5(2) (b), or subsection 6(2)", substitute "subsection 4(2), 5(2) or 6(2)".
Statement pursuant to the order of the Senate of 26 June 2000
These amendments are framed as requests because they are to a bill which imposes taxation within the meaning of section 53 of the Constitution. The Senate may not amend a bill imposing taxation.
Statement by the Clerk of the Senate pursuant to the order of the Senate of 26 June 2000
As this is a bill imposing taxation within the meaning of section 53 of the Constitution, any Senate amendment to the bill must be moved as a request.
I raised these issues in the context of my second reading contribution earlier today. I can indicate that these requests would ensure that the provisions of the Major Bank Levy Bill would also apply to foreign banks that have significant assets of over $100 billion in terms of their global assets. What this would mean is that banks such as HSBC, ING and BNP Paribas would be liable for this levy in terms of their Australian liabilities. I think it would lead to an unfair and uneven playing field if foreign banks got a free kick on the bank tax. We heard the evidence that was given to the inquiry just a few days ago.
The major banks have set out—as I did in my second reading contribution—the reasons why this particular levy ought to apply to the foreign banks. They will get a strategic competitive advantage over the major banks, and I believe that is fundamentally unfair. We are looking at three foreign banks active in Australia whose global liabilities are well over the government's $100 billion threshold. ING has something like $794 billion in liabilities. Banque National de Paris has 1,971 billion—close to two trillion—euros in liabilities. HSBC has over 2,000 billion British pounds in global liabilities. A bank levy of six basis points on all foreign banks on their Australian liabilities would be in the order of about $180 million per annum. A bank levy of six basis points on all foreign banks under their Australian assets would be in the order of $228 million per annum.
This is something that I think would be equitable and fair. I know that there does not appear to be much support in the chamber for this, but I have yet to hear a good explanation as to why the foreign banks should be exempt from this and major Australian banks should be put at a competitive disadvantage.
I thank Senator Xenophon for his contribution. Firstly, foreign banks are not excluded from the application of the major bank levy. It just happens to be the case that no foreign bank in Australia is a major bank. What is relevant is the RD liabilities under the Australian licence, and no foreign bank operating in Australia is a major bank in Australia. No foreign bank operating in Australia has liabilities of $100 billion or above. If in future any foreign bank operating in Australia grows to have a large presence with a subsidiary above $100 billion in total liabilities, they would be subject to the levy on the same basis.
The concern of the government is that, if we were to support the amendment that Senator Xenophon has moved, the effect actually would be a lessening of competition in the banking market. It was indeed none other than former Labor Prime Minister Paul Keating who made a very significant effort to strengthen competition in the banking market in Australia by attracting foreign banks into the Australian market. If we were to assess foreign banks not based on their liabilities in Australia but on their liabilities worldwide, it would obviously put them at a significant disadvantage in terms of their activities in Australia, which would lessen competition, which would not be good for consumers. That is why the government has proposed to structure this major bank levy the way we have.
Labor will not be supporting this amendment. We note that Treasury has considered issues relating to foreign banks when designing the measure that is before us in the bill. Labor believes the government should release this work to explain why large foreign banks should be excluded, and we agree with the recommendation of the Economics Legislation Committee that Treasury provide greater explanation of the rationale for the method of liability calculation, which presently excludes foreign banks. Such information is important to consider the significant policies such as this, but in the absence of this information we emphasise that the importance of this legislation before the Senate is for budget repair, and we cannot let the government off the hook for its poor management of the budget. We will not delay the passage through the Senate of this legislation, which has a start date of 1 July.
For several reasons, the Greens will not be supporting Senator Xenophon's amendment. Senator Xenophon was at the committee on Friday and may be aware this question was put to the second-tier banks, which appeared in the afternoon and which included Adelaide and Bendigo banks, ME Bank and Customer Owned Banking Association. They have themselves, interestingly enough, come out and lobbied for the bank levy, so let's be clear about that. Twenty out of 25 of the Australian Bankers Association's members support this bank levy because they want to see increased competition in the market. So we got this from the second-tier banks, and you would have expected that, when you put to them, 'Do you support this levy also including foreign banks,' they might say yes, because actually these foreign banks are quite fierce competitors for our second-tier banks.
The answer was illuminating, and it is exactly my view. They said that the policy rationale, the underlying logic behind this bank levy, apart from increasing competition, is to pay the taxpayer back for its too-big-to-fail implicit and explicit guarantee to the big five banks. They made it very clear when they were asked. I asked the question: 'Do you support this levy?' and they said no, because it defeats the purpose. The foreign banks did not get a too-big-to-fail bank levy. In fact, the Australian banks, putting aside the Canadian banks, were the only banks in the world with this government guarantee.
That is quite extraordinary. As I mentioned in my speech earlier, you could easily come up with $50 billion worth of profits they had made for shareholders from this too-big-to-fail guarantee. We are only asking them to give back $5 billion of that. That is paying a premium on an insurance policy provided by the Australian taxpayer. The other reason, as I think Senator Cormann pointed out, is that the policy cannot be discriminatory against any bank. It is very clear: it sets a liabilities level of $100 billion, and if you go over that, whether you are a foreign or domestic bank, you pay the levy. I have explained this to Senator Xenophon. If we set $100 billion and then set a lower level for the foreign banks and leave the second-tier Australian domestic banks out of it, that will not work. It is almost certainly going to be challenged in international courts through state-to-state trade dispute mechanisms. It would be discriminatory against foreign banks. The only way it would work would be for all banks to have the same policy applied to them, which is the case.
I believe this foreign banks business has been thrown in by the big banks as a poison pill, and I am disappointed that we have fallen for what I think is the oldest trick in the book. The big banks are throwing this in there to try and kill this legislation, because they do not want to see more competition. I have a lot of respect for Senator Xenophon. It is interesting that in your speech you talked about supporting the smaller banks and that is one of the reasons why you will be supporting the levy. You talked about increased competition, but in a way you are contradicting yourself because, as Senator Cormann said—and I agree—what we want is more competition in the market, including from the foreign banks. Why make it harder for them? We want to make sure we have the most competitive market possible for all the banks.
There are a lot of good reasons why we do not support the inclusion of foreign banks. If somehow everybody in here were to agree that the liability should be $10 billion and not $100 billion, and that included all the banks in Australia, we would be happy with that. But this is the policy that has been set at $100 billion. This is an opportunity that we should not squander. We should pass this legislation tonight.
As I mentioned in my speech on the second reading, there are couple of elements of this bill which I, as a Liberal, do not like. It does open the way for future governments to have a super profits tax, and that raises the issue of how we can argue against that in the future, in the next 10 to 15 years, when there might be another government in power. But I am persuaded, because of the need to repair Labor's mess in the budget, that we have to do something. I am prepared to go along with that. I also acknowledge the argument that this is a sort of payment or licence fee for the guarantee that the Australian taxpayers give to these banks, as they did in the time of the global financial crisis and more broadly.
On balance, as I mentioned to my speech on the second reading, I do not really like it, but I am prepared to support it. But I do refer the minister to the recommendations of the Economics Legislation Committee—which, I might say, has a government majority—which had unanimous recommendations. There are five recommendations there, which I know the Treasurer would be aware of. I really want to confirm the government's position, particularly on recommendation 4, which I will summarise very briefly by saying it was all about the fact that it was raised with us that the Treasurer, if the economic and financial situation of the banks became quite critical—hopefully it never happens—but it was pointed out to us that currently the Treasurer was unable to give any relief in those extreme circumstances. We hope and expect they will never happen, but the committee thought that in that event it would be a good idea to give the Treasurer that ability and flexibility in those extreme circumstances to suspend the application of the levy. The committee was hopeful that the government would adopt that amendment. All of the amendments were done by the committee in good faith and after hearing the evidence.
I will spend a couple of seconds on recommendation 1. It was put to us—and I personally agreed with this—that this is a budget repair levy and when the budget is repaired the levy should stop. I easily equated to that view. But the committee took a more moderate approach, saying: 'Well, let's have a look at whether we should look at stopping the levy when the budget is repaired. This has been sold to the Australian public as a budget repair measure and, once the budget is repaired, why do you continue on with a levy which many Liberals do not like?' We do not like it because, again, I will briefly mention, profit is not a dirty word. The banks make profits, and we hope they do make profits. As Senator Bernardi said, 'The only thing worse than a very, very profitable bank is an unprofitable bank. We do not want them.' There are lots of mums and dads who are shareholders in banks and they want the banks to make profits. Of course, the biggest shareholders in the banks are the superannuation funds, who want the banks to make money so that they get big dividends so that they can adjust their superannuation payouts to all of us in Australia to look after us all in retirement.
The committee thought, as a mid-way post, that in two years the government should refer this back—not to an independent group or to some other organisation to assist—to the same committee, the Senate Economics Committee, to have a look to see whether the policy was fulfilling its stated objectives—that is, is it repairing the budget? Also, to look at the effect of competition on the banking market—let's have a look at that in a couple of years—and in two-years' time, after the levy has been working for two years, to see whether it is required in perpetuity, which is the current legislation as I understand it, and where it is going. It is there forever; it is not just until the budget is repaired. I would have hoped that in two years the—
It was obviously an inane comment, which we often get from the Greens political party.
Senator Whish-Wilson interjecting—
The TEMPORARY CHAIR: Order!
Senator Dastyari interjecting—
The TEMPORARY CHAIR: Senator Dastyari, no. You should resume your appropriate seat in the chamber if you have something to say; otherwise, it is most disorderly.
Chairman, thank you very much, but I do not need protection from Senator Dastyari or from Senator Whish-Wilson. They have their own problems that are not relevant to this debate. The committee thought that the same committee should, in a couple of years, see whether this was needed to be in perpetuity—whether it needed to be there forever—or whether, once the budget was repaired, the levy should stop. That seemed to me to be a very reasonable compromise, which I had hoped the government would take some notice of.
There were a couple of other things that were raised by witnesses at the committee which formed the basis of recommendations 2 and 3. Again, they are not recommendations that oppose the principle, for the reasons I have mentioned. The committee goes along with the levy, somewhat reluctantly—but we understand why. There was some evidence given at the committee which the committee thought if more fully investigated might actually improve it or might work to the government's disadvantage. I would like to get the minister's comments on how the government is going to deal with the unanimous recommendations of this committee.
I thank Senator Macdonald for his contribution and his questions. Firstly, in relation to recommendation 1, the government of course supports the Senate's role and the role of the Senate committee system in reviewing legislation. Ultimately referrals to the Senate Economics Legislation Committee are a matter for the Senate. If the Senate in future considers that these matters should be reviewed at that time, that is of course entirely within the Senate's prerogative, and from the government's point of view we are completely comfortable with that occurring at that time.
In relation to recommendation 2, the committee recommends that Treasury closely examine issues relating to the technical aspects of the bill to determine whether changes are required to avoid double taxation and/or to narrow the liability base. Treasury has already undertaken extensive work and examined issues relating to double taxation. Consistent with the UK, it is expected that any double taxation will be prevented through the use of international tax treaties and that Treasury will monitor the practical operation of the law and make recommendations to government if necessary.
In relation to recommendation 3, I have actually in responding to Senator Xenophon's amendment explained why the government does not think it is a good idea to exclude foreign banks. Foreign banks are actually covered by this legislation; it is just that there is not a single foreign bank operating in Australia that is a major bank in Australia. But if a foreign bank were to exceed the $100 billion liability threshold in the future then the levy would apply to it. To do otherwise would reduce the level of competition in the banking sector in Australia, and Senator Whish-Wilson has also made a very accurate observation that we are not at liberty to discriminate in the Australian market between domestic and foreign banks. The same policy has to apply on the same basis.
In relation to recommendation 4, the committee recommends that the legislation be amended so that the Treasurer may, on the advice of APRA, suspend the application of the levy to any or all authorised deposit taking institutions in extreme financial or economic circumstances. Given the strength of the major banks, the government does not believe that this is either appropriate or warranted, and we do not believe it would send the right signal for the government to indicate that such a measure is required by supporting any initiative to that effect. Consistent with the levy being deductible, like other expenses for tax purposes, the expectation is that the banks will manage the cost of the levy as with all other expenses.
I will not pursue this any further except to ask the minister one question in relation to recommendation 1. I hear what the minister says, and of course it is appropriate that the Senate is able to set up committees in two years time to look at whatever it needs to. The committee would have hoped that the government might have actually made a firm commitment to that. There were calls which, I have to say, I and some other committee members thought had some merit, in that there should be a sunset clause in the legislation. So, the legislation would read 'when the budget got into surplus'—but better words than that!—then this levy would stop. But that was a bit prescriptive, so the committee, as I said, took a conciliatory view in saying, well, let's not make that mandatory but let's get the government of the day—and it may not be this government; I hope it is, but it may not be—to at least have a look in a couple of years to see whether the levy is repairing the budget, which is the basis upon which it is introduced, and whether it is affecting competition in the banking market and whether it is one that should continue forever rather than only, as was the rhetoric around it, to the time when the budget is repaired.
Whilst the minister is right—the Senate can set up whatever committees it likes—I would have hoped that there might have been some government imprimatur that says, 'That's a good idea; we will do that in two years.' It does not cost the government anything. It does not in any way limit the passing of the bill. But it is something that I think would show good faith and would also address some of the very genuine concerns that were raised at the committee hearing. I accept that some of the submissions made to the committee may not have been 'genuine', but many were, and the committee tried to pick up on those and made what we hoped would be helpful recommendations to the government.
Firstly, Senator Macdonald is quite right. The government does not support a sunset clause for this legislation, and it is indeed our intention for the legislation to operate on an ongoing basis, which is something the government has made clear all the way through. In relation to the Senate Economics Legislation Committee, the difficulty I have is that, as all senators know, the government does not have the numbers in the Senate at present. In two years time it will be up to the Senate at that time to decide whether or not they proceed with this inquiry. From the government's point of view we support the Senate's reviewing of legislation and the Senate committee system through which legislation is reviewed. We would support an inquiry of the type that is proposed by the committee, but we are not be able to bind a future Senate, and it will be a question for the Senate ultimately as to if and how that proceeds.
I was paying attention to what Senator Macdonald was asking and was not trying to interject in debate; I was talking to Senator Whish-Wilson across the room, so my apologies about before. Senator Cormann, my understanding of the point that you made, which I think was a fair one, is that we want to be careful about binding future Senates to decisions.
We cannot. We can move motions and say whatever we want in this chamber, but a future Senate will determine its own destiny. I accept that. I am not as familiar with this as others or as the advisers you have around you. The process for having a review of legislation in two or three years time: is the review of these types of tax bills by Treasury or others an uncommon process? I do not know what the normal process is for this kind of taxation legislation and whether there is a precedent for doing that. That is not a loaded question; it is a genuine one.
And the genuine answer is that from time to time reviews are part of legislation. As Senator Macdonald explicitly pointed out, he was not proposing an independent inquiry or any inquiry other than through the Senate Economics Legislation Committee. As I have indicated, the government is supportive of that proposition.
I would address some of the arguments put forward by Senator Whish-Wilson, who made reference to the attitude of the smaller banks. When I put the question of foreign banks to Mr McPhee, the CEO of ME Bank, he said in evidence:
But what I believe is that we should have a level playing field and therefore if it can be clearly demonstrated that the foreign banks are getting an advantage, and it might be a rulings advantage from wherever they are domiciled et cetera, then I think the levy should also apply to levelling the playing field and making everyone able to compete fairly.
I think this is an argument. I do not accept many of the arguments of the big banks as to why they should not pay the levy, but I accept this argument as to why foreign banks should pay the levy. The foreign banks in question compete with the big banks mainly in corporate lending—not so much in retail lending. They are already more competitive than the Australian majors, because they borrow in their home markets where interest rates are often zero or close to zero. That will see those big foreign banks that operate and have a significant presence in this country gain a competitive advantage over Australian banks. If you look at the total assets on the consolidated balance sheets—they are not at the same time as the balance dates are not all the same, given that some of these are overseas banks—the approximate foreign currency figures, by comparison, are: Westpac, $840 billion in consolidated balance sheets; CBA, $972 billion; NAB, $790 billion; ANZ, $897 billion; Macquarie, $167 billion; HSBC, $3.29 trillion; ING, $1.2 trillion; and BNP, $2.6 trillion, I say that, insofar as they are liabilities here in Australia, that should be subject to the levy. I will not push it any further as I know it does not have the support of most of my colleagues in this chamber, but I think it is an important principle. I would ask Senator Cormann a final question on this: if it is demonstrated that this is giving a competitive advantage to the major foreign banks, such as HSBC, ING and BNP, is that something the government will be monitoring and taking appropriate advice on?
The answer is that it is an explicit and deliberate design feature to ensure that the major bank levy does not apply to the smaller banks, whether they are Australian banks or foreign-owned banks. There is no foreign-owned bank that is a major bank in Australia. We actually believe that the way that this is designed, deliberately, will help to strengthen competition in the banking system.
The CHAIR: The question is that the requests (1) to (5) on sheet 8166 as moved by Senator Xenophon be agreed to.
Bills agreed to.
Bills reported without amendments; report adopted.