Gillard's super-sized bank slug

As the federal government gets frustrated with the major banks on interest rates, it appears to have found a way to get something back – a banking super-profits tax.

Australian banks are in a very dangerous situation. The government is making serious moves to devise what will effectively be a banking super-profits tax which threatens to hit bank profits very hard.

Our banks face a serious problem in the availability and cost of their overseas borrowing (A wake-up call for Australian banks, December 5) but if they fail to pass on the latest fall in official interest rates then Treasurer Wayne Swan will almost certainly accelerate his banking super-profits tax plan, which has received very little publicity because it is concealed behind an innocuous sounding title, 'allowance for corporate equity'.

I must emphasise that the banking super-profits tax has to pass many steps before it is incorporated into a federal budget but I do not think sharemarkets understand what the government is looking at. A large chunk of Australian superannuation and private share investment savings is invested in our banks and if Treasurer Wayne Swan implements his banking super-profits tax plan, he will give bank shareholders the biggest kick anyone has attempted since Ben Chifley tried to nationalise the banks in 1948.

In Canberra’s eyes, it will teach bank boards a lesson they will never again forget – listen to the words of the federal treasurer, especially when he attacks the banks with the backing of the Greens and independents.

To underline his seriousness, Wayne Swan has set up a nine-person working group that appears to have the aim of lifting the tax on bank profits from 30 to as high as 50 per cent. Worse still, according to The Age, both the Business Council of Australia and the unions are supporting the 'allowance for corporate equity'.

So far the treasurer has been very skilled in the way he has developed the banking super-profits tax and just as the Canberra spin machine obscures the JSF disaster from the popular press (Flying into a defence disaster, December 6), so they are doing with the plan to slug bank profits.

The plan was unveiled this week in a friendly article in The Age under the heading "Zero tax proposed for most companies”. Further down the article we discover that a 'super tax' is being developed in the wake of the Gillard tax summit, which looks to extend the government’s minerals resource rent tax across the entire corporate sector. The Age says it will lead to the most profitable companies paying a lot more tax and the rest paying none at all.

Under the 'allowance for corporate equity', no tax would be payable to the proportion of corporate profits necessary to get a reasonable return on equity. Manufacturers would pay no tax but, according to The Age, banks and mining companies would pay large sums because of the level of their profits.

Banks actually do not make huge returns on their equity, but you can be sure that the guidelines will be set so that the banks will pay dearly for not following the Reserve Bank's official interest rates. In a wider sense, the whole idea of 'allowance for corporate equity' leaves me absolutely speechless. People have invested money on the basis of clear, uniform corporate tax rules. Now those tax rules may be changed so that if you do very well, you will be taxed to the Stone Age.

The private enterprise system will not work if people who succeed cop huge taxes. People take risks looking for big returns. Everyone hopes to succeed, but many fail.

The Business Council of Australia was completely out-manoeuvred on workplace relations by the Gillard government. Now, unless the BCA is very careful, they look like being taken to the cleaners again – and this time, the banks will be the main victims.

Footnote: The Business Council of Australia this morning issued a statement saying they were on the nine-member committee but the committee had not yet considered 'allowance for corporate equity'. While they are in favour of a review of corporate taxation, they are not in favour of the 'allowance for corporate equity'.