Ex-Goldman Banker Turnbull Slugs Aussie Lenders With Triple Hit

Australia’s biggest banks face a new tax, tougher penalties for misdeeds and efforts to spur competition as Prime Minister Malcolm Turnbull taps resentment against the big end of town to finance infrastructure and health spending.

As part of the Liberal-National coalition’s budget released Tuesday, the government will introduce a levy of 6 basis points on banks with liabilities over A$100 billion, raising A$6.2 billion from the nation’s five biggest banks. It won’t apply to superannuation funds or insurance companies.

“This represents an additional and fair contribution from our major banks, is similar to measures imposed in other advanced countries, and will even up the playing field for smaller banks,” Treasurer Scott Morrison said in a copy of his budget speech, to be delivered in Canberra.

It would bring Australia into line with levies imposed in Europe, including the U.K., Germany and Sweden, a Treasury official said. Australia’s major banks have total liabilities of A$3.3 trillion, almost double the annual size of the economy, according to government figures.

The tax will force banks to either take a blow to their profitability or pass the charges on to customers in the form of lower deposit rates and higher borrowing costs.

“Banks need to explain what they do to their customers, and customers can go elsewhere,” Morrison said in an interview with Bloomberg Television. “If they want to put up their prices, that’s a matter for them.”

The new levy from the traditionally business-friendly coalition aims to appeal to indebted voters’ anger at banks, which have failed to pass on interest-rate cuts in full even as they posted record profits. The harsher stance from the prime minister -- himself a former Goldman Sachs investment banker -- comes just months after he started to force banking executives to front parliamentary inquiries about their behavior following a series of scandals.

Shares Fall

Shares of the nation’s big four banks -- Australia & New Zealand Banking Group Ltd., Westpac Banking Corp., National Australia Bank Ltd. and Commonwealth Bank of Australia -- fell in morning trading in Sydney on Tuesday as news of the levy was leaked to media outlets. The tax is also expected to affect Macquarie Group Ltd., according to Treasury.

The move -- forecast to raise A$6.2 billion in the four years through June 2021 -- needs to be legislated before it can be implemented by July 1. It marks the second-largest new revenue measure in the annual fiscal blueprint.

Turnbull’s coalition lacks a majority in the Senate and relies on rival lawmakers to pass legislation -- a sometimes difficult task, as shown by the government’s decision in Tuesday’s budget to abandon A$13 billion of stalled savings measures.

Boost Competition

The levy will apply to liabilities including customer deposits of more than A$250,000 per bank, corporate bonds, commercial paper, certificates of deposit and Tier 2 capital instruments. It will not apply to additional Tier 1 capital.

The tax will complement prudential reforms and provide a “more level playing field” for smaller banks and non-bank competitors, Treasury said in its budget papers.

There would be “a great deal of alarm” within the industry and among investors if the levy was introduced, Australian Bankers’ Association Chief Executive Officer Anna Bligh said before the budget was released.

“They would be very concerned if there is a punitive tax or levy that singles banking out of the rest of the business sector,” Bligh told Australian Broadcasting Corp. radio on Tuesday.

Tougher Rules

In further signs of the government’s new focus on accountability within the banking sector, the budget will also introduce measures that will punish them by as much as A$200 million should they hide misconduct by executives.

A financial complaints authority will be created to adjudicate binding outcomes for disgruntled customers, while senior executives who fail to properly register can be disqualified from their positions and stripped of bonuses.

The government will also encourage new players in the banking sector by loosening restrictions around capital requirements for aspirants.

Turnbull’s tougher stance against banks was foreshadowed in a report released in March by Australia’s securities regulator, which found the big banks still need to improve oversight of their financial advisers.

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