New taxes on banks, both federal and state, have caused outrage. My paper, the AFR, got itself into a right tizz, and went into a leaden, clichéd overdrive.
First Canberra held up the banks because the politicians couldn’t control their spending, and the banks were both profitable and unpopular. Now that the Feds have broken into the banks’ vaults, other levels of government are joining in the looting of private stakeholders’ money. What we are witnessing is nothing less than the debauchery of the political system.
In yesterday’s budget, South Australian Treasurer Tom Koutsantonis announced that his state was going to follow Scott Morrison’s lead and whack the big four banks plus Macquarie with a 0.015 per cent tax on the South Australian share of their liabilities. Whereas Morrison said the banks could afford to ‘‘pony up’’ because ‘‘no one likes you anyway’’ and it was just a ‘‘fair additional contribution’’, Mr Koutsantonis said ’’we know they are making super profits’’ and that ‘‘even if every other state follows, they’d still be under-taxed’’. Sound familiar? Oh, and it will raise $370 million for the mendicant state whose disastrous renewable energy policy means they can barely keep the lights on, just as Morrison’s version is expected to raise $6.2 billion federally.
As we editorialised after the May budget, this is the Willie Sutton school of budget management: robbing the banks because that’s where the money is. Strapped governments simply reach around for cash wherever it can be found. Morrison’s Liberal Party, ostensibly the party of fiscal discipline, thought this was a great idea. Why shouldn’t the states follow suit? Yet this is serious, and may be the thin end of the wedge if other cash-strapped states choose to follow South Australia’s lead.
Dear, dear, dear – looting! ‘Of private stakeholders’ money’ – in a public company? Should we be looking for reds under the bed?
Then they published what lawyers call a plea from Ian Narev of the CBA (in which I hold shares).
The providers of the capital that fuels our economy are international pension funds, just like the Australian super funds looking after our retirement savings. These funds place high importance on strong banks. But they also place high importance on strong, predictable government policy. Providers of capital hate surprises. Surprises undermine their confidence to invest. They wonder where surprises will end. And in a world where they have abundant choices for investment, surprises ultimately lead them to take their capital – the capital we need to build businesses and create jobs – elsewhere.
Unpredictability of government policy has a clear label: sovereign risk. Ask global investors about their view of Australia, and most will point to significantly elevated levels of sovereign risk.
It is in this context that we should view the South Australian government’s unprincipled and reckless tax grab as it walked through the gate the federal government left open. Despite the fact that almost every Australian has an economic stake in the banks, and that banks directly and indirectly create jobs and wage growth, the Federal and South Australian Governments revel in saying how easy it will be to gain support even for populist policies that have no basis in sound economics.
They may be right. But they miss the big point. Under their watch, sovereign risk in Australia is rising exponentially. That won’t show up in short term opinion polls. It will show up over the longer term in reduced investment and higher costs of capital. And the community may take a different view when, in time, the consequences of these ill-considered policies become obvious, and can’t be explained away by slogans.
What that means, I think, is that Mr Narev fears that he may now have to pay more for his money. Poor fellow – quel domage! The business of banking is simple. You take money in through the left window at X% and let it out through the right window at X+Y% and you pocket the difference. Mr Narev is here worrying about the left widow – X may grow a bit. But what got the silly buggers into trouble was the right window – they found that in their greed they could not get their money back. You should watch The Big Short at the cinema and listen to the audience sigh and groan at the galahs that nearly sent us down.
The banks may have a ground of objection in economics. I wouldn’t know – but I do know that I am suspicious about economists. Where were these gurus when we needed them in the lead up to the GFC? Why could some whizz kids working in a U S garage see what was coming when no practising economist could? I’m even more suspicious when an appeal is made to the knowledge of business insiders. ‘Trust me, I’m a banker’ does not wash – to the certain knowledge of ‘I the banker.’
What about the politics then? A home run against the banks. How many people are in favour of cutting taxes paid by large profitable companies and reducing support for the young, the sick, the unemployed, and the aged? (Disclaimer – I may qualify under three of those headings.)
The federal government was crude – as is its wont – in saying that they could be cavalier with the banks because banks are unloved. But we do have a kind of democracy, and that is a form of government that should reflect the thinking and feelings of the people at large. It’s just tripe to dismiss that fact of life as ‘populism.’ If the people as a whole are angry with the banks – and they are – then it is natural that the government reflects this anger in their laws. That’s just what we have here.
For my part, I see no substance in the Commonwealth’s criticism of the state of South Australia. The people of that state have a government of a different political colour to that of the Commonwealth. For reasons I understand, people there are angry with both the Commonwealth and the banks, and that anger too will be reflected in their laws.
Of course there is a risk that these taxes will expand. That’s a risk with any tax and with just about any law. Income tax started as an emergency wartime measure to stop Napoleon. The government just got hooked on it, just as our governments got hooked on gambling revenues.
The banks were on the nose before the GFC. Someone like Mr Narev gets paid about one hundred times what Peggy Sue the bank teller gets. One of his main functions – one of his ‘drivers’ – is to sack as many Peggy Sues as he can and to leave me dangling on the line to the bowels of Bengal.
In their defence of their obscene pay levels, the banks refer to market forces. But their embrace of these forces dissolves into the ether when those forces don’t suit them. When market forces threatened the very existence of the banks, they came running to Daddy and Mummy for their dummy. They want me to stand behind them, whether I like it or not. They need us to guarantee them. So much for market forces, and those reactionaries who fulminate against government funded bodies like the ABC. At least the ABC acknowledges that it’s there to serve us – and don’t even think of asking which people trust more, Aunty or the banks.
With our help, the banks rode out the GFC. That crisis had been brought on by criminal greed and profit-driven ineptitude. We picked up the tab. The bankers trousered their bonuses. Almost no one went to jail. But people kept losing their jobs. Those left in work saw their wages stall, while their bosses were rolling in it. The banks sat pretty on our backs.
And they didn’t bother to support the government or even decently liaise with it. Instead they gave it the bird by appointing someone from the other team to lead their defence.
The banks behave with this lordly insouciance in an industry that doesn’t just need what politicians call a ‘social licence’ – they must have a legal licence to open their doors, just as I need a licence to drive a car. Well, they have got used to being callous with their staff, and rude to me – but can’t they see the sense of getting on with their government, or, if you prefer, their sovereign?
And in cataloguing some of the reasons why people don’t like or trust banks, I have not mentioned that the top pay levels are often set by criteria that encourage bank officers to cut corners with the law and decency. The word for that is ‘corrupt’.
What about sovereign risk? This is a protean term. I would think that people dealing with a bank may have to account for the chance that the government behind it may default on its debts or other obligations or that it might legislate against the banks. The greatest risk, as it looks to me, is that the government might repudiate its guarantee of the banks or fail to honour it. It’s not in Mr Narev’s interest to mention that risk in this context.
My little super fund holds a significant part of its shares in banks. I did that on advice from a mate who is a broker. He said that the conduct of the banks that made them jerks to their staff or me may make them more profitable and enable them to maintain their flow of dividends. He also advised that I look for markets that are tightly controlled and looked after by governments. (I can’t recall if he used the word ‘cosseted’.)
These new taxes may lead to a reduction in my dividends. I doubt that – I certainly don’t fear my being ‘looted’. But it will all be worthwhile if this little démarche leads to an improvement in the banks’ manners. I am sick of their arrogance, posturing, and bleating. Frankly, I’m even sicker of looking at people making twenty times what I made at my top with little of the learning and none of the risk.
Poet of the month: Homer, Iliad, Book 1.
The Greeks in shouts their joint assent declare,
The priest to reverence, and release the fair.
Not so Atrides; he, with kingly pride,
Repulsed the sacred sire, and thus replied:
‘Hence on thy life, and fly these hostile plains,
Nor ask, presumptuous, what the king detains
Hence, with thy laurel crown, and golden rod,
Nor trust too far those ensigns of thy god.
Mine is thy daughter, priest, and shall remain;
And prayers, and tears, and bribes, shall plead in vain;
Till time shall rifle every youthful grace,
And age dismiss her from my cold embrace,
In daily labours of the loom employ’d,
Or doom’d to deck the bed she once enjoy’d
Hence then; to Argos shall the maid retire,
Far from her native soil and weeping sire.’