Federal Budget 2017: Big four banks hit with new levy, potentially costing billions

By the time the federal Treasurer's speech was over, the banks faced a super tax, two powerful new regulatory bodies, fines of up to $200 million for breaching tough new misconduct rules and a beefed-up competition watchdog.  

The federal government is now on a collision course for a protracted battle with the "four pillars" of the nation's retail banking sector, along with Macquarie Bank, after Scott Morrison imposed a new "Major Bank Levy" that could wipe billions from their bottom lines.

The levy of 0.06 per cent on their client deposits will start on July 1, and raise $6.2 billion over the next four years.

In addition, bank executives will face tough penalities for misconduct under a Banking Executive Accountability Regime.

"If in breach, they can be deregistered and disqualified from holding executive positions, and be stripped of their significant bonuses," the Treasurer said. "Banks will also be held to account if they try and hide misconduct by executives with new mandatory reporting requirements."

The Treasurer has introduced a new federal body called the Australian Financial Complaints Authority, which he described as a "one stop shop" for customer complaints.

In a final whack at the sector, a permanent team will be established within the ACCC to investigate competition in the nation's banking and financial system, as recommended by the Coleman Committee. 

The moves will negate calls by the ALP and the Greens for a Royal Commission into the banks, while also helping to bring the budget back into balance by 2021.

"We are not sending lawyers around the country for three years, we are acting now," the Treasurer said, in reference to a Royal Commission.

The Treasurer was unrepentant when speaking about the new tax, which he admits will be used for budget repair after he was forced to dump more than $13 billion of "zombie" savings measures from the 2014 federal budget that had failed to pass the parliament.

"The levy will only affect our five largest banks with deposits of $100 billion or more and does not apply to superannuation funds or insurance companies," he said. "Customer deposits of less than $250,000 and additional capital requirements imposed on the banks from regulatory authorities are excluded."

The Treasurer also warned the banks not to try and pass the new tax on to their customers, saying they had no right to do so because it did not apply to mortgages or deposit accounts.

"They can't go and lie to customers," he said. "This is not a levy on their deposits. This is not a levy on their mortgages. Banks can jack up prices on their customers any day . . . if they do, take your money somewhere else, take your money to a regional or smaller bank."

Rumours the banks were under attack leaked ahead of the federal budget.

A senior executive at one of the Big Four banks warned the government of "unintended consequences" of introducing a new levy. 

"There are always unintended consequences when something new flows through a sector," he said. "This will have an impact somewhere. It might be on credit. It might be on dividends. We will see. What I will say is we desperately need broad tax reform in this country, but is a super tax on just the banks the answer?"

This story originally appeared on www.smh.com.au