Federal Budget : Big banks should count their blessings

Three weeks ago Malcolm Turnbull struck an agreement with China’s communist Government that neither side would engage in the cyber-theft of intellectual property.

Sadly for Bill Shorten, no such detente exists in domestic politics, as evidenced by the Prime Minister and Treasurer Scott Morrison’s wholesale pilfering of Labor’s issues in Tuesday night’s Budget.

Take the coalition’s traditional weakness on health, amplified by last year’s “Mediscare” campaign. Shorten promised voters a three-point “Medicare Guarantee” made up of dumping the freeze on patient rebates and a $5 increase in the cost of scripts, and introducing legislation to keep Medicare in public hands.

Turnbull, Morrison and Health Minister Greg Hunt had the audacity to unveil their own Medicare Guarantee, outlining they would establish a special account to fully fund medical services and drugs. And yep, the freeze and drug co-payment increases are gone.

The embrace of David Gonski’s school funding model, lifting the Medicare levy to fund disability insurance and slugging the banks — it’s as though Julia never left the building.

The brazenness of the Government’s actions caught Labor off guard. While much of the early commentary was on how this was a Labor-lite Budget, Shorten was at pains on Wednesday to emphasise it was anything but.

At $6.2 billion, it’s a lot of silence that can be bought.

Nevertheless, one senior Labor strategist on Tuesday night believed the coalition’s new found love for debt, tax hikes, public transport and splurge on social policy would tear the Government apart.

That doesn’t look like it will be the case (though Tony Abbott had a crack at the education “spendathon” in Tuesday’s party room meeting). Most MPs have welcomed the mopping up exercise.

While Turnbull and Morrison have learnt the mistakes of Budgets past, banging the drum of fairness, devising measures that have a good chance of getting through the Senate and trying to smother Labor, Shorten still has fertile ground to differentiate himself.

He can still promise to axe negative gearing, introduce an emissions intensity scheme to tackle climate change, deny big business a tax cut, shower more money on schools and health and hammer away over penalty rates. And he can still call a royal commission on the financial sector despite the Government’s surprise raid on the banks.

The big banks are looking at the new levy the wrong way. While they whinge about the levy being a whack on shareholders and customers, they should instead see it as protection money to stop a royal commission.

At $6.2 billion, it’s a lot of silence that can be bought.

Then there are new penalties facing badly behaving bank bosses, including having to register with the corporate watchdog. As one wag noted on Budget night, they are getting the same treatment as sex offenders.

The banks feel as though they have been completely blindsided but they have misread the mood.

The Government is obviously banking (so to speak) that the public won’t have much sympathy for an industry making billions of dollars which has seen its cowboy culture exposed.

Anna Bligh, the boss of the bankers’ lobby group, complained yesterday the tax had been cooked up in Morrison’s office last week after key bureaucrats were unable to give details on how it would work in a briefing with bank officials yesterday.

Deliciously for those who love political intrigue, it is hard not to see that Bligh’s hiring has spurred the Government into harsher action than would otherwise have been the case. The former Queensland Labor premier was employed by the Australian Bankers Association in February in large part to smooth things over with the Opposition but seems only to have succeeded in just infuriating the coalition’s tribal loyalists.

And the person she beat for the job, Sasha Grebe, is a former adviser to Morrison.

Even so, Bligh may be part right when she accuses the bank tax of being a last-minute addition to the Budget. The West Australian understands a late decision was made to include the bank tax, in large part because the Government was desperate to plug the revenue gap left by the failure to pass the Budget zombies by its self-imposed end of March deadline.

Certainly, the bank tax looks like a naked cash grab. It raises $1.5 billion a year, three times what the former Labor government’s plan to hit bank deposits would have generated over four years.

And Labor’s bank tax was at least tied to a specific purpose instead of going into consolidated revenue as the Government’s tax does. It would have gone into a dedicated kitty to guarantee deposits in the event a bank collapsed.

Labor never got around to legislating the deposit tax but the prospective revenue remained on the Budget bottom line until Abbott abandoned the idea in 2015.

Despite backbench pressure prompting Abbott’s decision, The West understands the idea of slugging the banks never went away. There was a feeling among the coalition’s senior ranks that the tax should be redesigned because banks could kick in more cash to fill the coffers.

There is a further political dimension to the bank tax. Every time Shorten attacks the Government’s plan to cut the corporate tax rate he describes it as a $50 billion handout for the big banks and multinationals (now worth $65 billion on the updated Budget figures).

The hope now is resistance to the tax cut will ease if voters know the banks aren’t being given a free ride. Backbench coalition MPs worked this out in February when some of them started suggesting that banks should still pay a higher rate while everyone else enjoyed a tax cut.

Turnbull back then ruled it out on the grounds it would be a nightmare to administer.

The banks are losing the PR and political battle, even though there is an element of truth to their claim that shareholders will suffer. Every extra dollar that goes to Canberra by extension means one less for dividend payments.

And while the Government is promising to sic the competition watchdog on the banks if they try to blame the tax for hitting customers with higher fees and charges, history has shown the banks happily jack up interest rates outside the Reserve Bank’s cycle.

Ultimately, though, banks also face losing the war. With support across the Parliament for the bank levy, it is going to get passed and it is impossible to see it being repealed any time soon.

Any mining tax-style advertising campaign against the tax would only serve to damage the Turnbull Government and breed resentment among coalition MPs. Banks could well end up wearing both the tax and a royal commission if they push back too hard.