Malcolm Turnbull has suggested putting a levy on the major banks has actually done them a favour.
The banks definitely don’t see it that way.
The Prime Minister believes Australia would have lost its triple-A credit rating without new revenue measures such as the bank levy in his government’s second budget.
All three major credit rating agencies have confirmed Australia’s top-tier rating since the May 9 budget, although one – Standard & Poor’s – has kept the rating on a negative outlook, leaving open the risk of a downgrade in the next couple of years.
“If we had not raised this additional revenue measures, I don’t think many people imagine we would have been able to retain that triple-A rating which is so important for all Australians,” Mr Turnbull told reporters in Canberra on Monday.
“In particular, it is very important for the banks.”
A downgrade of the sovereign rating would also be reflected in the ratings of the big banks, raising the cost of funds when raising money overseas.
However, S&P lowered the ratings of 23 other Australian financial institutions on Monday.
This included the likes of AMP, Bank of Queensland and Bendigo and Adelaide Bank.
“We believe the risk of a sharp correction in property prices has increased,” S&P said in a statement explaining its decision.
It considers if this occurred, all financial institutions operating in Australia are likely to incur significantly greater credit losses than at present.
However, the big four – ANZ, Commonwealth Bank and National Australia and Westpac – were not included in this mass downgrade on S&P’s assumption that the government would support them if necessary.
The 0.06 per cent bank levy, which the government argues is for this implicit guarantee, is forecast to raise $6.2 billion over the next four years.
One of the five banks subject to the levy has cast doubt on the size of the annual windfall.
Westpac, Australia’s second-largest retail bank, has advised the stock exchange and shareholders the levy will cost it $260 million after tax annually.
“No company can simply ‘absorb’ a new tax, so consideration is being given to how we will manage this significant impost on the bank,” Westpac said.
Asked if he was confident in raising the $1.5 billion per year between the big four and investment bank Macquarie, Mr Turnbull told reporters: “I’m confident that the Treasury’s estimates are correct.”
The prime minister later told parliament the levy was tax-deductible as a business expense, which the forecast $6.2 billion revenue takes into account.
Finance Minister Mathias Cormann earlier rejected calls to extend the levy to include foreign banks.
Senator Cormann insists there are no major foreign banks in Australia following calls from crossbench senator Nick Xenophon to include them in the policy.