Calling bullshit on The Big Four

Less than 24 hours after the Budget was announced and the Big Four Banks are already crying poor.

Last night Treasurer Scott Morrison announced a 0.06% annual levy on banks banks with liabilities above $100 billion, namely the Commonwealth Bank, Westpac, National Australia Bank, ANZ and Macquarie.

And already the banks, their ‘experts’ in the field, and tame ex-politicians – *cough* Anna Bligh *cough* –  are flooding the media with claims it sets a dangerous precedent.

“Former Queensland premier Anna Bligh, who now heads up the Australian Bankers Association, said the levy was an attack on jobs and growth that will hit the millions of Australians who are customers or investors in the banks.” 

The New Daily


The Australian


The Australian Financial Review



As a primary example, in a statement on the Westpac website,  CEO, Brian Hartzer cried poor, claiming $14 billion of value was wiped off Australian bank shares because of speculation around this new tax.

*Disclosure: I bank with Westpac and my partner works for Westpac in IT.

EDIT: It is worth noting here, the extremely relevant point made by journalist Michael West, that the leaked news of the budget bank levy which wiped $14 billion from the banking sector is the biggest insider trade of the year. Will anyone be held responsible for this? It seems unlikely… Onwards.

Thanks to our compulsory Superannuation system, all Australians are vulnerable to the emotional whims of investor confidence. Whether the levy – or any policy affecting the banks – is a good idea or not is now immaterial, because the sentiment expressed by the market literally affects the dollars and cents we have invested in Super. In this way voters can no longer objectively assess the validity of political decisions without disadvantageously risking their retirement fund.

Politicians are terrified of market sentiment, and because we are all invested whether we like it or not, we are simply along for the ride. Though, in this, there is a strong argument to be made for more involvement in Super at an individual level. If more people took an active participation in the Super system, they could not only protect their investments from the whims of the market, they could at least, in part, take back control of the market and play a larger role in directing investor sentiment.

(Though, what exactly superannuants are supposed to invest in if not the biggest and safest companies in the country, is a question worth pondering. All of a sudden replacing compulsory Super with a Pension system doesn’t seem so bad…). It also points to a lack of diversity in the domestic economy.

“Westpac already pays over 30% of its profits in tax”, Hartzer cried.  His claims are true enough, but they come with a caveat, courtesy of economist Philip Soos: “Given Westpac is a haven of usury and control fraud, their profits stem from unearned income from issuing credit out of thin air in the largest housing bubble in Australian history. Hence these profits are economic rents, therefore taxes on rents are not a burden.”

Hartzer boasts that no taxpayer funds have been used to prop-up the Australian banks,  a statement which, according to Soos, is “close to being a lie”.

“Westpac and other banks are recipients of massive government support but not direct transfers from taxpayers to banks (yet, until the bailout in the horizon).”

Banks may claim they don’t receive direct taxpayer transfers (which is technically true for now) but there is a whole edifice of government supports to boost their size and power to make generous profits. This includes:

–   Non-competitive oligopoly market power.
–   Deposit guarantees. (Available to all Authorised Deposit-taking Institutions (ADIS).
–  RBA liquidity (Also available to all ADIs)
–  RBA $360bn Committed Liquidity Facility, the result of an exemption to international rules, provided by the Bank for International Settlements (BIS)because there are insufficient Australian Government securities in the market to allow banks to easily meet the BIS requirements for banks to hold safe assets.
–  Reliance on federal government’s AAA rating to lower their funding costs.
– Regulator refusal to investigate mortgage control fraud. (Australian Securities and Investments Commission, Australian Prudential Regulation Authority, The Reserve Bank of Australia & the Treasury)
Government refusal to hold a Royal Commission into banks’ criminal activity.

“The banks can claim to be not dependent on the government but it is all a lie,” says Soos.  Banks will always and inevitably be dependent on the government.

That is not to say banks don’t serve a purpose.

In the words of economist, Dr Steven Hail, economics lecturer at the University of Adelaide, banking should be boring.

“Banks should do a few things, well and reliably, and be tightly supervised,” he says. “Nobody should feel sorry for them or their owners.”

However, monetary policy and the regulatory framework around banking has helped to prop up bank profits.

They benefit from the correct perception they are too big to fail. It is impossible for the Australian government to allow the Big Four to become insolvent, giving them a significant advantage over smaller banks.

In fact, The RBA has guaranteed Westpac $49.1 Billion in liquidity should the crap hit the fan.

“Westpac in APRA’s stress test would fail without the government providing this $49.1Billion committed liquidity facility,” said economist Lindsay David.

Hartzer also claimed that higher taxes reduce the banks’ ability to generate capital that supports lending and stability in times of stress. In reality, Westpac has been making record profits and rather than using it to increase capital against their loan books, used it to deliver dividends to shareholders.

“The banks have chucked a wobbly against the Financial System Inquiry and APRA for making Westpac and the other banks increase their capital charges,” says Soos. “It doesn’t occur to Westpac that we have so much over-lending we don’t need any more. If anything, we need to radically decrease lending (but that would end the housing bubble).”

Hartzer claims the new levy is a “stealth tax” on customers’ life savings and the shares in their superannuation accounts which will make Australia’s banks less competitive.  Given the oligopoly power of the banks, it is possible – and likely – the levy will be passed on to customers. But to say it will make Oz banks less competitive is a total joke given the oligopoly power they have and massive state protections they enjoy (listed above). Oz has probably one of the OECD’s least competitive banking systems – everything is dominated by the Big Four.

Australia seems to exist in perpetual denial of the looming economic event on the horizon, which, if it continues to go unaddressed, will see a financial crisis worse than what occurred in 2008.

This budget does little, if anything, to correct this road to ruin.

As of yesterday’s budget announcement, individuals aged over 65 who are downsizing their home that they have owned for at least 10 years, can contribute up to $300,000 of the sale proceeds as a non-concessional contribution into superannuation; whilst this would benefit people my parents’ age, it seems breathtaking as a policy which literally spells out that if you’ve owned a home which has gone up 400% and you’re earning a lot of money, then you’re allowed to evade tax.

Moreover, an incentive to put profits of a down-size into Superannuation will only further serve to inflate the bubble. But when it bursts – and it will – it will be ok because wealthy retirees will have tax-free income stashed in Super.

Australian voters and reporters MUST stop this obsession with surplus. A surplus is no more an indicator of economic health than the rising private debt that has been exploding to support such a fallacy.

Let’s forget for a moment that the likelihood of achieving surplus in four years is all but an impossibility

A budget surplus is neither consistent with economic growth, nor does it do anything to address employment.

Taxes do not need to be collected before they are spent.

Say it with me:

Taxes do not need to be collected before they are spent.

Taxes do not need to be collected before they are spent.

Taxes do not need to be collected before they are spent.

Taxes have never been collected before they are spent. If that were the case the global economy would grind to a halt.

Taxes do not pay for government spending. Government spending is what generates the income necessary to produce taxes to be collected in the first place.

Government debt does not have to be repaid, let alone with interest.

The Big Four like its customers to believe they operate independently from government. This is one of the most powerful fallacies keeping voters in debt, in poverty, and in static limbo, prevented from ever getting the leg-up they need for true financial freedom.

The Banks control 80% of the domestic market. That is the textbook definition is too big to fail.

The crowing over concern for customers is a well-worn PR exercise. Banks have been robbing their customers blind with high fees and control fraud for years. If the banks were truly concerned for the interests of their customers, they could wear the cost by reducing their returns to shareholders, but they have no interest in doing this.

Nobody loses an election by taxing the banks, but at the end of the day it is us who will wear the costs and consequences of the continued apathy towards true financial and economic reform.



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Claire Connelly is working on her first book, How The World Really Works, a guide to recognising rhetorical red flags and immunising yourself against bullshit. You should definitely buy it when it comes out. A podcast of the same name will also be launching in the coming months. Stay tuned!