The Distillery: Bank deposit blows
Most of Australia’s business commentators are at pains to admit there’s a lick of sense behind Treasurer Chris Bowen’s decision to impose a levy on bank deposits to pay for the risks that banks pose to the government through the deposits guarantee. But, it’s a shameless cash grab before an election and everybody knows it.
We start with The Australian’s John Durie, who is mad as hell about the government’s proposed levy, labelling it ‘policy on the run’.
“Last weekend Chris Bowen wrote to the banks floating the concept and suggested they ‘consult’ on the proposal, but the news broke yesterday, just days later, and already it seems a done deal with a 5-10 basis point hit starting in the 2015 financial year and baked into forward estimates. Leave to one side what it says about the state of the nation's finances, the concept is total nonsense, bad policy and reeks of decision-making on the run by a desperate government. The timing is superb, coming just days after the Business Council of Australia launched its detailed case for long-term policy decision-making. This effort is the exact opposite and introduces yet another distortion into the financial system.”
The Australian Financial Review’s Chanticleer columnist Tony Boyd writes that it would be best practice for the treasurer to create a fund to house the deposit insurance proceeds.
“But the decision to use the levy as recurrent funding, which is similar to the treatment of the Medicare levy, means that when a crisis hits, the government of the day will have to pay for it out of that year’s budget. The budget will have to expand to cover this liability if it is in excess of whatever money has been set aside. The prospect of a bank collapsing in Australia appears remote at present. But Australian banks are highly leveraged to both domestic and external shocks.”
Fairfax’s Elizabeth Knight says that, to be fair to the government, there’s actually a good point in theory behind the plan.
“Many other international jurisdictions impose this kind of levy and it was a recommendation made by the Council of Financial Regulators. The merits of this yet to be released policy depend firstly whether it's needed and whether it will be useful. A levy of 0.05 per cent of deposits would barely touch the sides in the event of a collapse. And it won't begin until 2016. The Australian banking industry takes the view that we shouldn't be compared with other countries because we have a track record for being one of the safest and best regulated banking markets in the world, and thus don't need to insure against the worst-case scenario.”
Business Spectator’s Stephen Bartholomeusz similarly acknowledges the apparent logic of the move.
“Logically depositors, as the beneficiaries of the government guarantee, should foot the bill in proportion to the size of their deposits. Given the banks, having experienced their vulnerability to wholesale debt markets during the financial crisis, are trying to increase the proportion of deposits in their funding – and are being effectively forced by the new regulatory settings to do so – that’s probably unlikely to happen in today’s low-rate environment. More likely there would be a sharing of the costs between depositors, borrowers and, perhaps, shareholders (if all authorised deposit-taking institutions had to fund the tax it could be fully passed on to customers without any impact on individual competitiveness). In other words, customers would be taxed, not to create an insurance scheme, but to create another revenue source for a cash-strapped government.”
The Australian Financial Review’s John Kehoe acknowledges that it’s a cash grab, no question. But there are reasonable grounds for it.
“Politically, it would also be a calculated move because Shadow Treasurer Joe Hockey has previously raised concerns about implicit subsidies to the banking sector. Australia is almost the only country in the world that does not impose a fee for the privilege. More than 90 per cent of taxpayer deposit insurance schemes around the world are funded through fees on banks, including in Canada, the United States, United Kingdom and New Zealand. The International Monetary Fund’s detailed Financial System Stability Assessment of Australia last year concluded that Australia’s ‘ex-post’ funding of the financial claims scheme in the event of a banking failure was ‘not consistent with international best practices requiring banks to bear the cost of their own failures’.”
The other big news from yesterday’s business news cycle was Amcor’s decision to jump on the demerger train. Fairfax’s Adele Ferguson notes that demergers are the new black in corporate Australia.
“There have been a bevy of reports from investment banks in the past few months extolling the virtue of demergers as the key to extracting shareholder returns. The bankers are banging the drum at a time when corporate activity has been in a slumber since the big fee fest in 2009, when companies were forced to recapitalise their balance sheets through equity issues.”
Business Spectator’s Stephen Bartholomeusz says the split makes sense conceptually and in terms of timing.
“While it may not be as obvious as it was with Brambles, which recently announced the demerger of its Recall information management business from its core CHEP pallet operations, the evolution and transformation of Amcor since Ken MacKenzie’s elevation to chief executive in 2005 has produced two quite separate sets of business. There is the core and ongoing Amcor which, on the back of a series of beautifully timed and executed acquisitions and $1.4 billion of disposals, has emerged as the global leader in rigid plastic containers, food flexibles, healthcare flexibles and tobacco packaging.”
Elsewhere, The Australian’s economics editor Adam Creighton brings the Hitler references in his piece objecting to the government’s latest increase in the tax on cigarettes, which is obviously a shameless cash grab sold under the banner of public health.
And finally, The Australian Financial Review’s Matthew Stevens reports on a speech delivered by Woodside Petroleum boss Peter Coleman yesterday. Apparently the oil and gas major is content with the changes to the Israeli gas reservation policy that alter the economics of its Leviathan gas partnership.