It’s hard to know where to start on the South Australian bank tax. It is just that bad.
The massive new impost on the four major banks and the Macquarie Group was announced by SA Treasurer Tom Koutsantonis in the state budget released last week.
The Treasurer believes the tax will raise $370 million over the next four years. But as we know, the assumptions behind revenue estimates from new taxes are almost always somewhere just short of heroic.
And the problem with the new bank tax is not whether it will raise the revenue claimed by the government. The key issue is that new taxes on any part of the state’s economy are the last thing that state needs.
One of the great moral challenges of our time is getting people into fulfilling, meaningful work. This is a particular challenge in SA. The under-utilisation rate in SA is the highest in the country at 16.6 per cent, according to the May labour force figures from the Australian Bureau of Statistics. While unemployment fell in every other state in Australia, it climbed to 7.3 per cent in South Australia.
And this is where Koutsantonis’s rhetoric about the profitability of the banks is most galling, because unprofitable businesses can’t employ people. It’s only companies making money that are able to do so. In a very real way, the SA bank tax is a tax on jobs.
If the Treasurer was interested in reversing the downward spiral in which his state finds itself, he might want to consider doing the opposite: cutting taxes and cutting red tape to attract investment now draining out of the SA economy. The ability of any state, or country for that matter, to attract investment is largely a function of risk. Risks can take many forms, and there are some that cannot be controlled. But regulatory risk is something over which governments have complete control. And the SA economy has just been saddled with another risk consciously imposed by government.
It’s unconscionable. It’s economic vandalism. And it presents investors with yet another reason to turn somewhere else.
This is bad policy. And the timing couldn’t be worse.
Sadly, the ability of the federal Coalition government to attack the measure is fatally wounded by the fact it laid the blueprint. Technical, legal and constitutional arguments aside, the bank tax is either a good idea in principle or it’s not. The suggestion that it’s a good idea at the national level but a bad idea at the state level just doesn’t wash. The door to the SA bank tax was opened by federal Treasurer Scott Morrison.
Comments by Malcolm Turnbull could not have made that more obvious when he said, “ … the question that Mr Weatherill has got to answer is that, is his decision going to make business in South Australia more competitive or less competitive”.
Replace the words “Mr Weatherill” with “Mr Turnbull” and “South Australia” with “Australia” and you’ve got a knock-down argument against Turnbull and Morrison’s own policy.
And does anyone believe this will be the end of it? The West Australian government flagged almost immediately its interest and said it will be watching the implementation of the SA tax with great interest.
And the overseas experience gives us a good indication of what’s to come here in Australia.
Britain introduced a bank liabilities tax in 2011. Since that time the rate at which the tax applies has been increased seven times.
Of course it’s also worth pointing out that while it would have been better for Britain to refuse to bail out its banks during the global financial crisis and therefore avoid the cost to the taxpayer and the attendant moral hazard that comes with that kind of government action, the rationale for a bank tax in Britain was stronger than here. The British bank levy was about recouping the $47.5 billion that had been spent bailing out the banks. In Australia, where no such costs have been directly imposed on the taxpayer, the stated rationale for both the federal and the state bank tax has been to raise revenue to pay for unrelated public expenditure.
SA is unlikely to be the last state to implement its own bank tax. And I’d wager that the rate of the federal bank tax won’t stay at 0.06 per cent either.
But at a time of slow — and in some cases negative — growth, politicians seeking to pursue policies that add further burdens on business are engaging in negligent conduct.
Instead, our elected representatives need to be implementing policies that will lead Australia into a future of opportunity and prosperity. More and higher taxes have never been able to achieve that.