Major Bank Levy Bills Introduced

The Treasurer Scott Morrison yesterday (3 May 2017) introduced into the House of Representatives the two Bills that will bring about the implementation of the "major bank levy" (MBL), a key part of the Federal government's 2017-2018 budget. The two Bills in question are the Major Bank Levy Bill 2017 and the Treasury Laws Amendment (Major Bank Levy) Bill 2017.

As forecast in the May 2017 budget, the proposed legislation reaffirms the expectation of the measure raising overall $6.2 billion in revenue, with $1.6 billion of that to be raised in the first year. The MBL has been set at a rate of 0.015 percent per quarter for banks with more than $100 billion in certain liabilities, the effect being that any future changes will  require parliamentary approval. Further, the threshold is set to rise with inflation each year.

Details of How it's to Work

According to the Treasurer's Second Reading Speech, the MBL will apply  from 1 July 2017 to all "authorised deposit-taking institutions" (ADIs), both foreign and domestically owned, who have more than $100 billion in "licensed entity liabilities", this will include the big four banks. Smaller banks will not be liable to pay the MBL and the $100 billion threshold will be indexed to growth in "nominal gross domestic product".

The MBL will be 0.015 percent of each affected bank's "licensed entity liabilities each quarter" (that is, 0.06 percent each year).

Excluded from this are:

• additional tier 1 capital;
• deposits protected by the Financial Claims Scheme (FCS); and
• the quarterly average value of Exchange Settlement Account (ESA) balances held with the Reserve Bank of Australia (RBA).

The Treasurer has indicated in his second reading speech that the MBL will not apply to 

• everyday household deposits;
• banks' assets - such as mortgages; or
• other financial institutions, such as insurance companies or superannuation funds.

In the Treasurer's words:

The levy, for example, will apply to:

• corporate bonds; 
• commercial paper; 
• certificates of deposit; 
• Tier 2 capital instruments; and
• operational liabilities and non-FCS protected deposits.

Assessment of the MBL, according to the Treasurer's second reading speech, will be in the  hands of the Australian Prudential Regulator (APRA) and mostly based on data already reported to APRA.  The MBL will be payable quarterly to the Australian Taxation Office (ATO) and according to the Treasurer:

Payment of the first levy installment has been delayed to assist with transition into the new process by the banks. According to the Treasurer:

The Governments Case for the MBL

The Treasurer in his second reading speech argues that ". . . the levy will support efforts to improve financial system resilience",  and that the government is working in line with the recommendations of the Murray Financial System Inquiry to ". . . improve the resilience of Australia's financial system". Key aspects of this are said to be, by the Treasurer:

• setting bank capital requirements such that Australian banks are 'unquestionably strong';
• strengthening APRA's crisis management powers;
• improving bank liquidity and encouraging more stable funding; and
• ensuring that our banks have appropriate loss-absorbing capacity.

The Treasurer also argues that the MBL will act as a competitive measure as it will encourage smaller banks and alternative financial operations to grow and extend and so increase choice of banks and lenders for customers:

The final argument for the MBL by the government is that given that government backs the security of the big four with taxpayer money placing them in a position of advantage, the banks should accept an obligation to pay something like MBL back to the community without passing it on:

Comments and Reactions

Opposition frontbencher Matt Thistlethwaite is quoted as saying that:

Australian Bankers Association Chief Anna Bligh is reported as saying the levy should only apply for a set term and that the banks will ensure that every government and cross-bench senator fully understands the impacts of the tax over the next decade.

Professor John Freebairn, from the University of Melbourne, is reported as saying that its likely the banks will successfully charge customers for the levy using indirect methods such as a combination of higher interest rates and fees - which if it happens will mean the increase in revenue will only match the increase of costs to the bank caused by the levy: 

Ahead for the Legislation

It is early days yet with both Bills sitting in the House of Representatives where they are expected to be passed. It will be more interesting to see the fate of the Bills once they arrive in the Senate.

TimeBase is an independent, privately owned Australian legal publisher specialising in the online delivery of accurate, comprehensive and innovative legislation research tools including LawOne and unique Point-in-Time Products. Nothing on this website should be construed as legal advice and does not substitute for the advice of competent legal counsel.

Bills in question are Major Bank Levy Bill 2017 and the Treasury Laws Amendment (Major Bank Levy) Bill 2017 plus second reading speeches as reported in the TimeBase LawOne Service

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