Big banks fall prey to confused levy report

Govt will reportedly announce tax to shore up budget as part of pre-election statement; shares in big four tumble on speculation.

The federal government will levy banks to provide insurance for potential future bailouts to shore up the budget bottom line, according to the Australian Financial Review.

At first the AFR reported the levy will form part of the government’s economic statement, and be between 0.5% and 1% on protected deposits with the level set at $100,000. However, it then corrected it to between 0.05% and 0.1%.

The big four banks weighed on the market at noon after reports of the new levy.

Commonwealth Bank slipped 2.16% to $72.61, while ANZ Banking Group fell 2.02% to $29.16.

National Australia Bank dropped 1.92% to $30.63, while Westpac Banking Corporation decreased 1.42% to $30.45.

The benchmark S&P/ASX 200 index was 0.03% higher at noon.

Labor will on Friday announce the deposit insurance levy, recommended by the Council of Financial Regulators, which will raise funds to underwrite Australian banks that need government assistance, the newspaper reported. 

It is understood the revenue raised would at least equal the $5.3 billion that the increased tobacco tax will raise, the AFR said. 

Presently, banks pay the government a fee to guarantee deposits over $250,000.

However, Treasurer Chris Bowen said the government had no plans to tax the banks, but he was in regular consultation with them in relation to financial regulation and financial services, and about recommendations that have been made by the financial regulators.