Rebekha Sharkie (Mayo, Nick Xenophon Team) Share this | Hansard source

The Nick Xenophon Team is a strong supporter of the Major Bank Levy Bill 2017, and we support this additional contribution from Australia's most profitable sector, the banking sector, towards budget repair. However, beyond the general argument of repairing the budget, there are several good arguments that make the major bank levy good policy. Although many Australians have cause to dislike the banks, there are fundamentally good policy reasons for the bank levy as well.

The first policy argument relates to the guarantee scheme for large deposits and wholesale funding. In 2008, the then Labor federal government introduced a guarantee scheme for large deposits and wholesale funding and provided a $180 billion debt facility for Australian banks. In short, this was a too-big-to-fail arrangement. Together, these measures have put our banks at a significant competitive advantage and boosted their earnings, substantially, to the cost of the taxpayer. Although this scheme only lasted two years, global ratings agencies now consider Australian banks to be government backed. As a result, Australian banks now enjoy stronger credit ratings than they would have otherwise obtained, which delivers them a further competitive advantage because they can borrow offshore at a discount. One of the purposes of a similar bank levy introduced in 2011 in the United Kingdom was for the banks to make a full and fair contribution in respect of the potential risk they pose to the wider economy. This only reinforces the argument that major Australian banks should make a fair contribution—an insurance premium, if you will—towards the potential cost of this implicit too-big-to-fail guarantee from the federal government.

The second argument relates to the undertaxing of financial services by GST, because they are, for very practical reasons, input taxed rather than output taxed. According to the 2016 Tax Expenditures Statement from the Treasury, the forgone revenue was estimated to be $3.45 billion a year. The major bank levy helps to address this issue of undertaxation—although, admittedly, only for the major banks.

Thirdly, the banking sector enjoys super profits due to the high concentration of market power in the hands of just a few majors. They are super profits. Last financial year, the Commonwealth Bank reported a cash profit after tax of $9.45 billion, the National Australia Bank recorded a profit of $6.48 billion, ANZ a profit of $5.89 billion and Westpac a profit of $7.8 billion, in one financial year. Between them, these four banks made a massive profit of $30 billion. According to Choice magazine, the big four banks control an overwhelming 94 per cent of the commercial banking market in Australia. And the big four banks' profits are only increasing, at a time when real wages for Australian workers have been stagnant since the global financial crisis. There is a very compelling argument for the bank levy: that it will act somewhat as a super profits tax to even out the balance between the banks and the Australia consumer public.

Lastly, by applying the $100 million liability threshold, the bank levy helps to level the playing field between the major banks and the smaller, regional banks that are at a significant competitive disadvantage. However, the Nick Xenophon Team does not believe that the levy should be discriminately applied on the basis of national origin. Why should major foreign banks be exempt from the levy? I have heard the argument that foreign banks provide more competition to the Australian market. However, the super profits currently enjoyed in the Australian financial and banking sector are so enticing for foreign competitors that they will not be deterred by this bank levy. If the purpose of the levy is indeed budget repair, extending the levy to foreign banks would raise significant funds to help pay back Australian debt. Calculations sourced by the NXT estimate that a levy on the Australian liabilities of just three foreign banks active in Australia—ING, BNP Paribas and HSBC—would raise $179 million a year, or almost $800 million over the forward estimates.

Applying the levy to major foreign banks that operate in Australia will also provide the additional funding required to set up a last-resort compensation scheme for victims of financial mismanagement and fraud. Admittedly, if you have been the victim of bad financial advice from a bank, at least you know that the bank has the funds available to provide compensation, even though the method of compensation and the processes need to be improved dramatically. However, too many financial services businesses have gone into liquidation and too many financial advisers have gone bankrupt, and this has meant that there are no means of redress for many thousands of victims. Any compensation scheme should also be complemented with stricter requirements for insurance and financial planners.

The government's review into the financial system's external dispute resolution and complaints framework, better known as the Ramsay review, has been considering exactly such a scheme. According to a supplementary issues paper to the Ramsay review, as of 2 May this year, an enormous $14.3 million of determinations in favour of complainants made by the Financial Ombudsman Service and the Credit and Investments Ombudsman still remain unpaid, and this huge figure only accounts for people who have chosen to go through a formal ombudsman complaint process. My Senate colleagues and I have spoken to many victims of financial malpractice, particularly retired Australians who placed their trust in managed investment schemes. An ongoing compensation scheme should be a priority for any federal government. The cost of such a scheme would be a small fraction of the total revenue that the foreign bank levy would raise, but a small fraction of the revenue that the bank levy is currently projected to raise.

In conclusion, I urge the government to extend the bank levy to the liabilities of foreign banks that are booked in Australia. These are not small banks. I also urge them to use some of the funds raised by the bank levy to set up a last-resort compensation scheme for victims of financial mismanagement and fraud.

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