Interest rate rises, job losses and lending restrictions possible as state levy ‘opens Pandora’s Box’
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Interest rate rises, job losses and lending restrictions possible as state levy ‘opens Pandora’s Box’
South Australia’s new bank levy could end up hitting the state’s mortgage holders, experts have suggested.
Similar to the recent Federal Government bank levy, SA’s 6% tax on bank liabilities was announced on Thursday afternoon as part of the state government’s 2017-18 Budget. The tax would target the majors plus Macquarie and will come into effect on July 1.
SA’s state bank levy could be the first of many, UBS analyst Jonathan Mott has predicted: “We believe it is possible the other states may follow SA's lead and introduce further levies on the banks. Additionally, with the Federal election 12-18 months away further increases in the Federal Bank Levy cannot be ruled out, especially if the Australian Budget remains under pressure… we remain cautious on the banks – Pandora’s Box is officially open.”
The contents of Pandora's Box
Unlike the Federal bank levy, SA’s isolated bank levy could encounter severe consequences.
UBS says although the $97m p.a. levy will only have a minor effect on profits – estimated at just 20bp of pre-tax profit – banks could seek to respond in five ways.
The first is to take legal action; although the wording of the levy has yet to be unveiled, the Australian Financial Review reported that banks were already approaching constitutional lawyers.
More concerning for brokers is UBS’ second suggestion; that banks could increase interest rates on SA mortgages to cover the cost of the levy. The same possibility was raised after the Federal Budget, with Treasurer Scott Morrison instructing the Australian Competition and Consumer Commission to investigate rate hikes, but experts have warned the ACCC would struggle to pin banks down on this.
UBS have also warned that banks could ration credit to the state or even move operations out of South Australia, as a political warning or to avoid paying the tax. Westpac and its subsidiary Bank SA have already warned that the levy “is not only bad public and economic policy, it is not in the interests of South Australians. This distortionary policy could influence decisions banks make about investments in SA.”
ANZ’s CEO Shayne Elliott has argued that “All businesses will rightly question the political risk associated with investing in a State with a Government prepared to unfairly target an industry that has played a significant role in supporting its lagging economy.”
The Australian Bankers Association has criticised the levy and called on every state premier and first minister to rule out state bank taxes.
Foreign buyers to be hit
Overlooked in the SA 2017-18 State Budget are a number of other measures relevant to brokers.
A surcharge of 4% will apply to residential property purchased by foreign buyers and temporary residents from 1 January 2018. Similar charges have been introduced in other states, including New South Wales at 8% and Victoria at 7%.
Stamp duty will also be halved on commercial and industrial property transfers.
South Australia’s new bank levy could end up hitting the state’s mortgage holders, experts have suggested.
Similar to the recent Federal Government bank levy, SA’s 6% tax on bank liabilities was announced on Thursday afternoon as part of the state government’s 2017-18 Budget. The tax would target the majors plus Macquarie and will come into effect on July 1.
SA’s state bank levy could be the first of many, UBS analyst Jonathan Mott has predicted: “We believe it is possible the other states may follow SA's lead and introduce further levies on the banks. Additionally, with the Federal election 12-18 months away further increases in the Federal Bank Levy cannot be ruled out, especially if the Australian Budget remains under pressure… we remain cautious on the banks – Pandora’s Box is officially open.”
The contents of Pandora's Box
Unlike the Federal bank levy, SA’s isolated bank levy could encounter severe consequences.
UBS says although the $97m p.a. levy will only have a minor effect on profits – estimated at just 20bp of pre-tax profit – banks could seek to respond in five ways.
The first is to take legal action; although the wording of the levy has yet to be unveiled, the Australian Financial Review reported that banks were already approaching constitutional lawyers.
More concerning for brokers is UBS’ second suggestion; that banks could increase interest rates on SA mortgages to cover the cost of the levy. The same possibility was raised after the Federal Budget, with Treasurer Scott Morrison instructing the Australian Competition and Consumer Commission to investigate rate hikes, but experts have warned the ACCC would struggle to pin banks down on this.
UBS have also warned that banks could ration credit to the state or even move operations out of South Australia, as a political warning or to avoid paying the tax. Westpac and its subsidiary Bank SA have already warned that the levy “is not only bad public and economic policy, it is not in the interests of South Australians. This distortionary policy could influence decisions banks make about investments in SA.”
ANZ’s CEO Shayne Elliott has argued that “All businesses will rightly question the political risk associated with investing in a State with a Government prepared to unfairly target an industry that has played a significant role in supporting its lagging economy.”
The Australian Bankers Association has criticised the levy and called on every state premier and first minister to rule out state bank taxes.
Foreign buyers to be hit
Overlooked in the SA 2017-18 State Budget are a number of other measures relevant to brokers.
A surcharge of 4% will apply to residential property purchased by foreign buyers and temporary residents from 1 January 2018. Similar charges have been introduced in other states, including New South Wales at 8% and Victoria at 7%.
Stamp duty will also be halved on commercial and industrial property transfers.
