Co-ops push franking credits as insurance
Smaller banks and credit unions, which rely more on deposit funding than large banks, are likely to be disadvantaged by a 0.05 per cent levy on guaranteed deposits from 2016, experts say.
In response, Professor Kevin Davis, from the Australian Centre for Financial Studies, has suggested lenders be allowed to use franking credits to fund their contribution, rather than cash.
Franking credits, distributed with dividends, are tax credits granted to shareholders when companies have already paid tax on their profits.
The big banks have billions in accumulated franking credits but would be unlikely to use these to fund the levy because the credits are a hit with shareholders.
Most customer-owned banks, on the other hand, are unable to distribute franking credits to their members, causing them to build up.
Damien Walsh, the managing director of customer-owned bankmecu, said the lender had about $75 million in franking credits, and Professor Davis' suggestion had merit.
Mark Degotardi, head of public affairs at the Customer Owned Banking Association, estimated the sector had $1.5 billion in accumulated franking credits, and it was adding $150 million to $200 million of the credits a year.
Both Labor and the Coalition plan to introduce the levy on bank deposits, which is forecast to raise about $500 million a year.
Frequently Asked Questions about this Article…
The article describes a proposed levy of 0.05% on guaranteed deposits, planned from 2016 as part of a deposit insurance scheme. Both Labor and the Coalition plan to introduce the levy, which is forecast to raise about $500 million a year.
Franking credits are tax credits attached to dividends that compensate shareholders for tax a company has already paid on its profits. They are distributed with dividends and reduce the shareholder's tax liability.
Credit co‑operatives point out that the sector has accumulated about $1.5 billion in franking credits and propose these credits could be used to meet the levy contribution instead of cash. Professor Kevin Davis suggested allowing lenders to use franking credits to fund their contribution, a proposal some in the sector, like bankmecu’s managing director Damien Walsh, say has merit.
According to the article, big banks do have billions in accumulated franking credits but would be unlikely to use them to fund the levy because using those credits would be a hit with shareholders.
The Customer Owned Banking Association estimates the customer‑owned banking sector has about $1.5 billion in accumulated franking credits and is adding roughly $150 million to $200 million a year. The article notes bankmecu alone had about $75 million in franking credits.
Professor Kevin Davis of the Australian Centre for Financial Studies proposed that lenders be allowed to use franking credits to fund their contribution to the deposit insurance scheme rather than paying in cash. The idea was described in the article as having merit by bankmecu’s managing director, Damien Walsh.
The article reports experts saying smaller banks and credit unions, which rely more on deposit funding than large banks, are likely to be disadvantaged by a 0.05% levy on guaranteed deposits beginning in 2016.
The article states that both Labor and the Coalition plan to introduce the levy on bank deposits as part of the deposit insurance scheme.
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