(Bloomberg) -- Australia’s biggest banks face a new tax, tougher penalties for misdeeds and efforts to spur competition as Prime Minister Malcolm Turnbull taps voter resentment against the lenders to finance infrastructure and health spending.
The government will raise A$6.2 billion ($4.6 billion) from the nation’s five biggest banks over the next four years by imposing a 6 basis points levy on liabilities over A$100 billion, Treasurer Scott Morrison said in the budget released Tuesday in Canberra. 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,” Morrison said in his budget speech.
Shares of the nation’s big four banks fell after news of the levy leaked earlier in the day.
Commonwealth Bank of Australia slumped 3.9 percent, the biggest decline in 15 months, at the close of trading in Sydney. Westpac Banking Corp. dropped 3.5 percent, Australia & New Zealand Banking Group Ltd. shares fell 2.6 percent and National Australia Bank Ltd. declined 2.1 percent.
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 Australian Bankers’ Association slammed the tax, and blasted the government for failing to consult lenders before announcing the plan.
“This new tax is not a well thought out policy response to a public interest issue, it is a political tax grab to cover a budget black hole,” the association’s Chief Executive Officer Anna Bligh said in a statement. “It is naive and misguided and has already sent the wrong signals to global financial markets about the strength and stability of our banking sector.”
The levy is equal to about 5 percent of banking sector profits, UBS Group AG analysts led by Jonathan Mott said in a note before the levy was announced.
“The Australian banks have a very good record of passing on higher funding costs” to customers, Mott said. The easiest way to do so would be to raise mortgage rates by between 12 basis points to 15 basis points.
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.
The tax is also expected to affect Macquarie Group Ltd., according to Treasury. Macquarie shares fell 2 percent on Tuesday.
The tax “will be a bad outcome for the banks, consumers and customers and the economy,” David Ellis, banking analyst at Morningstar Inc., said before the levy was announced. “It will add significant cost and overhead for the banks. It would be a terrible outcome for everyone concerned.”
The levy may prove popular with voters, Sean Keane, an Auckland-based analyst at Triple T Consulting and the former head of Asia-Pacific rates trading at Credit Suisse Group AG said in a note to before the announcement.
The government “will be seen to be cracking down on excess bank profits, and that’s a vote winner in every economy, but most especially so in Australia,” he said.
The move 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.
The charge will apply to liabilities including corporate bonds, commercial paper, certificates of deposit and Tier 2 capital instruments, and be levied on the proportion of individual customer’s deposits in excess of A$250,000. 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.
The move 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.
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.
A portion of bonuses to bank executives, including the CEO, will have to be deferred for at least four years and the industry regulator will be given increased oversight powers on pay.
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.