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SMH: Deposit levy talk weighs on bank stocks

42 posts in this topic

1. Will the revenue from the levy go into consolidated revenue and hence never available when a bailout is required?

2. Will deposits be now 100% guaranteed or only the first $250K?

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Reports that Canberra plans to slug banks with a levy that will be badged as providing insurance in case future bailouts are needed is weighing heavily on bank stocks.

The AFR is reporting the federal government will prop up the budget bottom line with a new levy on banks.

The government’s economic statement, set to be released on Friday, will contain a deposit insurance levy as recommended by the Council of Financial Regulators, which will raise funds to underwrite any Australian bank should it need assistance in the future, the Australian Financial Review reports on its website.

AdvertisementThe proposed levy would be between 0.05 per cent and 0.1 per cent. An initial version of the AFR article had reported the levy would be between 0.5 per cent and 1 per cent. Presently, the government guarantees deposits up to $250,000 without charging the banks.

Today at Parliament House, Finance Minister Penny Wong would not be drawn on reports about the levy on bank deposits.

"I think the Treasurer today has referenced the fact that the IMF and the RBA have put a view to the government about the need for a fund to cover deposit protection. And the Treasurer's made clear he's consulting on that," Senator Wong told reporters.

The Finance Minister said there was always "speculation" before a budget or budget update but would not comment on that before the economic statement was handed down.

When asked if it would be presented on Friday, Senator Wong replied: "in the near future".

Banking stocks slumped by 2 per cent, weighing down the broader share market, in reaction to the report.

By midday, Commonwealth Bank, ANZ, and NAB were all down 2 per cent by midday and Westpac was down 1.5 per cent. The ASX financials index - which accounts for about 30 per cent of the total index - was the only sector of the market that had fallen.

The AFR quotes a senior source as saying the levy would build up funds “over time”, and would take several years to reach the billions. He said it would raise less than $1 billion over the forward estimates but build over the outer years.

An earlier report on the website said "it is understood the revenue raised would be at least as much as the $5.3 billion that the increased tobacco excise, also to be unveiled on Friday, will raise".

The revenue raised by the levy would also be added to the budget bottom line, helping the government offset a forecast plunge in revenues since the May budget and meet its target of returning to surplus in 2016-17.

“It won’t fix the surplus problem in itself but it will help,’’ the source said, according to the AFR.

The banks are understood to be unhappy about the proposal and Treasurer Chris Bowen, who has been consulting the sector about the move, will meet again today with the Australian Banking Association.

One big bank warned the levy would be passed on in the form of reduced interest payments on deposits, the AFR said.

When asked this morning if the government would look at the banks to find more money, Mr Bowen said "we have no plans to tax banks". But he said the government was in discussions with banks about financial regulation.

"Of course we’re in discussions with banks about various matters in relation to financial regulation and financial services, consulting with them about recommendations that have been made by the financial regulators and that consultation will continue," he said.

Opposition leader Tony Abbott was asked to respond to the report, but would not be drawn on the issue until the facts are known.

"We will respond to the government's economic statement when we see the economic statement. We are not going to respond piecemeal to rumoured or individual items that may or may not be in it," he told reporters in Melbourne.

He did, however, take aim at the move to raise tobacco excise, labeling it "just another tax."

"If they do this to you before the election, just think how much worse it will be after the election," he said.

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Saving is evil and must be punished.

1 person likes this

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Saving is evil and must be punished.

It's true! happy.gif

SMH: We have a debt problem, says NAB chief

The head of one of Australia's biggest banks has slammed the quality of debate about debt in this country, labelling it ''very immature''.

National Australia Bank chief executive Cameron Clyne said we had a ''unique window'' as a AAA-rated country to issue more government debt to fund desperately needed infrastructure.

''Australia has a debt problem: we don't have enough,'' Mr Clyne said on Thursday.

''If we continue to have the debate that suggests that all debt is bad, and not a debate on the productive use of debt, we will simply not be able to fund the infrastructure this economy needs to thrive into the future.''....

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1. Will the revenue from the levy go into consolidated revenue and hence never available when a bailout is required?

link

See below for a bit of budget trickery. If they're quarantining the levy then what are they going to do with it? Deposit in the bank?

2. Will deposits be now 100% guaranteed or only the first $250K?

Seems like only the first $250k. But as usual with KRudd make an announcement and work out the details later.

The money raised from the savings levy will go into a quarantined "financial stability fund" that the Government can use to pay out deposits if a bank fails.

But the amount in the fund will count against the Government's Budget bottom line and help it scrape back into surplus by 2016-17.

......

In a brave move just before calling an election, Prime Minister Kevin Rudd will whack a 0.05 per cent levy on all bank, mutual bank and credit union accounts up to $250,000 to help boost his own Budget bottom line.

http://www.couriermail.com.au/news/queensland/rudd-government-to-whack-005-per-cent-levy-on-bank-accounts-to-take-733-million-for-budget/story-fnihsrf2-1226689834813

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See below for a bit of budget trickery. If they're quarantining the levy then what are they going to do with it? Deposit in the bank?

Seems like only the first $250k. But as usual with KRudd make an announcement and work out the details later.

I heard today that the monies will be quarantined from being used for general expenditure but will effectively become part of the budget as far as revenue earned. This sounds like the government can say we've shrank the deficit but have no access to the money. This would be creative accounting at its best!

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I heard today that the monies will be quarantined from being used for general expenditure but will effectively become part of the budget as far as revenue earned. This sounds like the government can say we've shrank the deficit but have no access to the money. This would be creative accounting at its best!

That's what the article I quoted says. I'm sure it's all Kosher and complies with Australian accounting standards 1. Not!

I'm surprised they don't treat the future fund in the same way. Perhaps they already do. Budget surplus' to the moon!

1 - interesting that the govt is not required to comply with accounting standards.

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I heard today that the monies will be quarantined from being used for general expenditure but will effectively become part of the budget as far as revenue earned. This sounds like the government can say we've shrank the deficit but have no access to the money. This would be creative accounting at its best!

Maybe I am being stupid but that seems the way to go for all taxes. Put them into "it can only be used for this purpose" blocks and then any interest from those blocks can be moved into "general stuff we didn't think of" buckets.

The idea that any organisation can say "oh there are so many things we can't think of that all the money has to just be in the 'spend it anywhere' bucket" is frankly terrifying to me.

Well it is terrifying when those people are in charge of the money, how f*cking clueless about their own plans can they be?

If they have some weird arse unforseen thing happen they can pass a one off transfer law thingy. They are the people that pass the laws after all. And if the weird arse thing happened to be something indicating incompetence at managing the finances then they can be relieved from the job because getting the one off law passed will draw attention to their failings.

If I paid road tax (I don't buy petrol so I guess I don't) then there should only be a few thing that could be spent on. Things making roads better (work crews and designers) and things reducing damage to roads (public transport, bikes) rather than things with no correlation whatsoever (NBN).

That is an example obviously, I have no idea whether the road taxes are quarantined or whether the NBN gets money from road taxes. I want the NBN but I don't see why road taxes should pay for it.

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The head of one of Australia's biggest banks has slammed the quality of debate about debt in this country, labelling it ''very immature''.

National Australia Bank chief executive Cameron Clyne said we had a ''unique window'' as a AAA-rated country to issue more government debt to fund desperately needed infrastructure.

''Australia has a debt problem: we don't have enough,'' Mr Clyne said on Thursday.

''If we continue to have the debate that suggests that all debt is bad, and not a debate on the productive use of debt, we will simply not be able to fund the infrastructure this economy needs to thrive into the future.''....

And now we know why the world has a problem.

With people like this in the driving seat, we are bound to drive off the cliff.

What a @#$%wit!

Did he even think about what he was saying?

Debt is good!!!! Since not ever..

Nehemiah 5:3-5 ESV

"There were also those who said, “We are mortgaging our fields, our vineyards, and our houses to get grain because of the famine.” And there were those who said, “We have borrowed money for the king's tax on our fields and our vineyards. Now our flesh is as the flesh of our brothers, our children are as their children. Yet we are forcing our sons and our daughters to be slaves, and some of our daughters have already been enslaved, but it is not in our power to help it, for other men have our fields and our vineyards.”"

Yep. Mr Clyne is a genius.

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If I paid road tax (I don't buy petrol so I guess I don't) then there should only be a few thing that could be spent on. Things making roads better (work crews and designers) and things reducing damage to roads (public transport, bikes) rather than things with no correlation whatsoever (NBN).

Would this be your view for all taxes?

Ie:

Income taxes should only be spent on activities related to income generation?

Capital Gains taxes should only be spent on activities related to Capital?

GST should only be spent on activities related to Goods and Services?

This sort of thinking works great for Business (ie. If a P&L centre can't pay for itself, should we shut down this business unit?) - but it makes less sense for a not for profit entity (ie. This Hospital can't pay for itself, should we shut it down?)

I would have thought that it is generally accepted that some Government activities need to be funded from taxes on unrelated activities?

If you want your taxes to be specified as to what they go to (ie. 30% of GST goes to Health, 20% to Infrastructure, 15% to Defence, etc) this still creates issues. Keep in mind that tax revenue for any given year can fluctuate a fair bit, but the need for Government services do not fluctuate to the same extent, or the same cycle. Would you be comfortable with being told that a hospital is shutting for 2 months Nov-Dec because GST revenue is down this year?

Cheers,

Dead Money

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Would this be your view for all taxes?

It depends on how the tax was initially sold to the public. As I recall (and stand to be corrected), petrol tax was initially introduced for the purpose of improving roads. Now it goes into consolidated revenue as far as I'm aware.

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It depends on how the tax was initially sold to the public. As I recall (and stand to be corrected), petrol tax was initially introduced for the purpose of improving roads. Now it goes into consolidated revenue as far as I'm aware.

I agree with that. But Tor's statement was "Maybe I am being stupid but that seems the way to go for all taxes" - emphasis mine.

I have no problem with some specific taxes being used for only a specific purpose - but I think doing this for all taxes is not best practice.

Cheers,

Dead Money

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I agree with that. But Tor's statement was "Maybe I am being stupid but that seems the way to go for all taxes" - emphasis mine.

I have no problem with some specific taxes being used for only a specific purpose - but I think doing this for all taxes is not best practice.

Cheers,

Dead Money

It may not be best practice, but it is largely standard practice for governments! thumbdown.gif

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Would this be your view for all taxes?

Ie:

Income taxes should only be spent on activities related to income generation?

Capital Gains taxes should only be spent on activities related to Capital?

GST should only be spent on activities related to Goods and Services?

This sort of thinking works great for Business (ie. If a P&L centre can't pay for itself, should we shut down this business unit?) - but it makes less sense for a not for profit entity (ie. This Hospital can't pay for itself, should we shut it down?)

I would have thought that it is generally accepted that some Government activities need to be funded from taxes on unrelated activities?

If you want your taxes to be specified as to what they go to (ie. 30% of GST goes to Health, 20% to Infrastructure, 15% to Defence, etc) this still creates issues. Keep in mind that tax revenue for any given year can fluctuate a fair bit, but the need for Government services do not fluctuate to the same extent, or the same cycle. Would you be comfortable with being told that a hospital is shutting for 2 months Nov-Dec because GST revenue is down this year?

Cheers,

Dead Money

I _did_ say I might be being stupid.

That said we _do_ close hospitals for that reason. And businesses _do_ expand budgets when things go wrong in an otherwise worthwhile area.

I think it is not a bad place to start from. In business if you blow your budget you can go and say "wow we f*cked up and this is why". If your reasons are valid and the project is worthwhile then you get more cash (in my utopia the governmental more cash comes from a general purposes fund which is the interest from all the extra taxes taken, projects can come in under budget after all, there just need to be reasons for the people in the project to deliver it under budget - something I do not see encouraged in my work with the public sector).

Obviously the words don't have to match up. GST doesn't have to be a tax purely for "goods and services". It can be introduced or increased for a specific purpose, say defence. Like the Medicare levy which was to fund the Indonesian invasion we did. Using the medicare levy to effectively prop up an industry _and_ reduce the responsibilities of government _and_ make thing more obscure is a pet peeve.

Because the money is not quarantined there is no reason to ever reduce taxes sensibly. Tax reductions become a political play thing: "Lets keep the medicare levy but give people more in childcare because that will win votes".

Which also makes the whole taxation thing more complex, people bitch about paying taxes _and_ bitch about the lack of infrastructure investment. There is no clear correlation between the two. If taxes were at least faintly obvious to their purpose it would at least mean people would bitch in more interesting ways: "I pay $X in old people health tax and my gransma can't get a hip replacement" - much more interesting than just bitching "I pay too much tax".

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I'm surprised they don't treat the future fund in the same way. Perhaps they already do. Budget surplus' to the moon!

At the same time, however, the funds raised would help to enhance the budget's bottom line in the same way that funds deposited in the Future Fund help the budget. It comes after heavy revenue write-downs in recent months.

http://www.smh.com.au/business/big-four-spooked-by-labor-levy-20130801-2r29c.html

So they do count the future fund!

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It's not a good idea to put this kind of levy into consolidated revenue. It'll end up getting pissed away on middle-class welfare, boomers, pink batts etc., so when banks fail there will unlikely to be anything left in the kitty.

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It's not a good idea to put this kind of levy into consolidated revenue. It'll end up getting pissed away on middle-class welfare, boomers, pink batts etc., so when banks fail there will unlikely to be anything left in the kitty.

Quoted for truth

It's what happened to the Gold Lotto Money in Queensland (supposed to be spent on the Hospitals), and it's also what happened to the 3% of income tax that's supposed to fund our pension when we retire

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and it's also what happened to the 3% of income tax that's supposed to fund our pension when we retire

I haven't heard that before but it's totally believable. Probably why a lot of oldies think they are entitled to a pension regardless of their assets or income.

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I haven't heard that before but it's totally believable. Probably why a lot of oldies think they are entitled to a pension regardless of their assets or income.

My Grandfather told me this. He was very angry about it.

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Taxing after-tax savings, which is already taxed on growth, with an additional levy Noiyce. It makes sense that people who trust banks with their savings should have to pay a bit extra to mitigate that risk.

I'd have though they'd just rename and announce the Medicare, Queensland Flood Relief, Bank Wail Bail Levy?

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Unless I'm reading it completely wrong this levy is just charging the Banks for the insurance they were previously getting for free.

We've tried de-regulated banking and it sucks. Let's go back to regulating the living bejezus out of them again. If they don't like it they can become building societies or whatever but they lose access to the public purse when it next goes pear shaped.

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Unless I'm reading it completely wrong this levy is just charging the Banks for the insurance they were previously getting for free.

We've tried de-regulated banking and it sucks. Let's go back to regulating the living bejezus out of them again. If they don't like it they can become building societies or whatever but they lose access to the public purse when it next goes pear shaped.

I think you are probably reading that correctly, The assumption I am working with is the banks will pass on the cost of the levy to the deposit holder. The effect is an additional tax / cost / lower rate for the depositor.

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Tax on banking in Australia is nothing new. Remember we had the FIT in most (all?) states - a tax on deposits. 0.05% IIRC and there was a tax on withdrawals by cheque.

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I think you are probably reading that correctly, The assumption I am working with is the banks will pass on the cost of the levy to the deposit holder. The effect is an additional tax / cost / lower rate for the depositor.

Yep, and could be as soon as this Tuesday. If there is a rate cut, let's see if the banks keep 0.05% or a little extra for luck.

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Yep, and could be as soon as this Tuesday. If there is a rate cut, let's see if the banks keep 0.05% or a little extra for luck.

That's an interesting concept, that the bank passes on the levy to borrowers rather than depositors.

In reality they'll probably pass it onto both (in full for each!).

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