New Rudd Government tax on bank deposits will hit you

Phillip Hudson and Stephen McMahon
The Advertiser
August 2, 2013
BANKS are expected to cut interest on deposits to make up for $733 million being taken by the Rudd Government as an insurance levy that will prop up its embattled Budget.
The “savings tax” would mean a customer with a $100,000 deposit could lose $4 a month in interest.
But the Government says the typical household has $10,000 in the bank and the loss would be less than 50c a month.

The change, to be announced in today’s mini-Budget by Treasurer Chris Bowen, could spark a battle with the banks who say the .05 per cent levy is unnecessary.
Senior banking sources last night told the Herald Sun it was likely to be passed on directly to customers.
The change will apply to deposits of up to $250,000 for each account in banks, mutual banks and credit unions from January 2016.
More than $4 billion was wiped from the value of the nation’s major banks yesterday on fears the levy will crimp earnings and hurt dividend payouts and superannuation.
Shares in the Commonwealth Bank – Australia’s biggest savings bank with a deposit book of more than $170 billion – fell 1.5 per cent.
The bank tax is being made on the advice of Reserve Bank governor Glenn Stevens and the International Monetary Fund to build up a buffer to protect deposits if a bank was to fail.
Today’s mini-Budget will also contain a $5.3 billion increase in tobacco tax.
The smokes tax will increase the price of a pack of 20 cigarettes by $5.25 over four years.
In just three months since the Budget was handed down, the revenue that was expected has deteriorated by about $20 billion.
Mr Bowen will announce more spending cuts to plug the hole and stay on track to return to surplus by 2016-17.
“That does require some difficult decisions, he said.
“But we’re not going to cut right back to the bone, we’re not going to cut basic services, we’re not going to cut schools and hospitals.”
Opposition Leader Tony Abbott said the Government couldn’t control its spending.
“Whether it is a bank deposit tax, whether it is an increase in cigarette tax, it’s all a hit on you,” he said.
After meeting Mr Bowen yesterday, Australian Bankers’ Association chief executive Steven Munchenberg warned the proposal was “unnecessary” and would hurt depositors.
“We already have a very safe and well capitalised banking system,” he said.
“We don’t support it and don’t think it is valid and it is ultimately likely to be passed on to customers.”
Under existing rules, if a bank collapsed the Government would cover the cost of protecting deposits by winding it up, and could put a levy on other banks.
The change would collect money gradually into a special fund as insurance against any crisis, but would also improve the Budget bottom line by $733 million.
Households have just over $600 billion on deposit, according to the latest data from the Australian Prudential Regulation Authority.
This is almost double the pre-GFC period when they hit a low of $307 billion.
Analysts warned any knocks to confidence in the banking sector would be bad for the economy and bank stocks in particular.
Australia’s big four banks generated more than $13 billion in profits in the first six months of this financial year.
Opposition finance spokesman Andrew Robb said today’s economic statement will be “an emergency mini-budget, because on the eve of an election the chickens have finally come home to roost.
“They’ve constantly over-egged revenue forecasts and cry ‘woe is me’ when money doesn’t come in,” he said.