Australia’s Banking System Is In Dire Need Of A Super Profits Tax

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Energy companies are just some of the ones that should have to pay back gains received from taxpayers.

The discussion of a super profits tax has been chiefly with energy companies, which have made significant gains recently due to the events in Ukraine. However, people need to discuss implementing a similar tax on banks, which also profits when interest rates go up.

The revenue of energy companies differs a lot depending on the situation, whereas Australian banks are always among some of the most profitable in the world.

As rates increase, it becomes easier for banks to make money since there is more margin between what they charge borrowers and pay depositors. Although borrowing rates often follow Reserve Bank’s rate rises, deposit rates don’t usually move at the same pace.

In addition, low official rates over the last decade strained bank margins. They needed to reduce deposit rates more because regulations required them to keep a minimum of retail deposit funding. Lenders’ profits should rise along with higher interest rates so long as borrowers don’t default in large numbers.

Last year, Australia’s big four banks saw $28.5 bn in profits, with a return on investment at 10.6%. It is significantly higher than the global average, as the banks are 160% of GDP relative to the size of the economy- around double what’s seen globally.

60% of Australian bank loans are mortgages, one of the highest proportions in the world. It, combined with low-interest rates and high property prices, increased home loan volume and strengthened banks’ performances.

“Australia has the most profitable banks in the world, representing 2.9% of the nation’s GDP,” Executive Director of The Australia Institute, Ben Oquist, said.

“A super profits tax on the excessive profits of banks makes good economic sense and would be a fair and effective policy.”

Profitability is subtler than one might think because central banks control access to the payment system. Because of this, during difficult times like 2008 and 2020, taxpayers carry most of the weight.

The 2017 bank levy, which only applies to banks with liabilities surpassing $100 billion, could be expanded. Its current rate of 0.06% is meagre when contrasted with the advantages of implicit government support—lowering borrowing costs by 0.22 to 0.34%, an estimate still being contested.

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