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Greens want big bank levy

The Australian Greens have proposed a new tax on the big four banks, in exchange for the federal government’s protection to ensure they do not fail.

Greens deputy leader Adam Bandt said today that it was time the big banks paid their fair share to taxpayers and the community. The minority party has proposed a 0.2% fee on all bank assets above $100 billion, which would apply to ANZ Bank (ASX: ANZ), Commonwealth Bank (ASX: CBA), National Australia Bank (ASX: NAB) and Westpac Banking Corporation (ASX: WBC).

The big four banks made a combined profit of $25 billion in 2012 and are projected to make $27 billion in profits in 2013.

The Australian Bankers Association (ABA) has rejected the move saying the majority of bank profits have been paid out to shareholders, many of whom are retail investors and superannuation funds. ABA chief executive Steven Munchenburg said that the banks had paid out $19 billion in dividends last year, and have paid out $82 billion in dividends.

He also added that the levy would hurt small businesses and the economy, as there would be less incentive to lend to small businesses, or the banks would have to increase the prices at which we lend.

Ratings agencies have assigned AAA credit ratings to Australia’s big four banks, mainly because of the implied support of the Australian government, because they are “too big to fail”. That has meant that the big four have been able to access funding much more cheaply than their regional and smaller competitors, allowing them to offer cheaper loans and gain a 90% share of the mortgage market.

Foolish takeaway

A levy on the banks assets appears to be a short-sighted attempt to bring in an estimated $11 billion in revenues. If it was introduced, the banks would in all likelihood pass on the costs to depositors and borrowers. Maybe the government needs to revisit its implied guarantee and if they are too big to fail, then surely that’s the real issue?

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The Motley Fool’s purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn’t own shares in any companies mentioned.

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