Australian bankers are furious after the country’s smallest state levied a “surprise” tax on the country’s five biggest banks that could siphon off $280 million in profits during its first four years on the books, according to Reuters. The tax was imposed by South Australia, which is struggling with the country’s highest unemployment rate and thanks the banks should be doing more to pitch in.
The decision, which provoked “howls of outrage from the sector,” represents an added financial burden on the largest banks beyond a $4.2 billion federal tax that was imposed last year - not to mention the country's record-low interest rates. The banks, struggling with low public favorability after a series of scandals and unified support in the country’s legislature, accepted that tax with minimal pushback. However, some are already threatening to pull investment as a form of retaliation.
The head of the Australian Bankers Association Anna Bligh called the tax "an outrageous cash grab without policy substance". Westpac Banking Corp and Australia and New Zealand Banking Group said the move could provoke a backlash from banks as they could decide to curtail investment in the state.
South Australian Treasurer Tom Koutsantonis said the five banks, which together collect about $30 billion in profit annually, can and should do more to help boost employment and contribute more to the state's economy. The tax revenues will be used to fund job-training programs, Koutsantonis said.
Australia’s bankers fumed, saying they already do enough to prop up the country’s economy.
"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," ANZ Chief Executive Shayne Elliott said in a statement.
The decision provoked speculation about whether the country’s other four states would impose similar taxes, with at least one analyst suggesting that at least a few states will.
"I would say it is definitely on the cards for other states," said Morningstar analyst David Ellis said. "For any cash-strapped state it looks like it is just an easy option."
However, he said it was unlikely that the country's largest state, New South Wales, would impose a similar tax because it had a strong budget surplus and would want to maintain Sydney's reputation as an Asia-Pacific financial services hub.
The tax will be equivalent to 6 basis points on 6 percent of the assets being taxed by the federal government. Koutsantonis reasons this is fair because South Australia’s economy accounts for only 6% of national GDP.