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Greens: Tax banks to fund education and unemployed

Greens Senator Christine Milne has said a tax on our banking system would help to fund education and the unemployed and correct “really dumb cuts”.

The Greens promise to raise up to $42.7 billion to boost welfare, education and the environment to pay for the spending. They propose levies be applied to the big four banks and miners. They would also cut fossil fuel subsidies. “A small levy on assets over a hundred billion is not going to collapse the banking system” Senator Milne said.

The promises are very appealing to voters but reality is that our banks may soon struggle to find much needed capital to continue their operations. NAB (ASX: NAB) general manager of debt markets, Steve Lambert, is concerned about new capital requirements for banks.

According to the Financial Review he stated the “changes could threaten traditional corporate funding arrangements if demand for credit increased”.

The RBA’s pull back on the cash rate has meant that not only are more investors removing term deposits from their list of assets, but international investors, those who provide much needed capital for our banks, are also deciding to pull their money from Australian shores, particularly as the mining boom and Aussie dollar depreciates.

When combined, NAB, Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC) and ANZ (ASX: ANZ) will notch up almost $27 billion in profits for the full year. Although there is no denying the amount of money our biggest banks will make is huge, the idea of a simple tax or levy would only add another requirement on our banks that are already facing headwinds in the form of lower interest rates, a lower dollar and increased capital obligations.

Foolish takeaway

Despite an increase in taxes and less buying power of the local currency, our banks are some of the most profitable in the world. If the cash rate lowers, we will see inflation in the price of their stocks as investors go in search of yield and safety. However, investors should show caution and understand that buying bank stocks, even at what might seem to be the right price, is not without its risks, particularly if we see experience a slowdown in property prices in which case investors should steer clear of the banks that write the highest amount of mortgages.

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Motley Fool contributor Owen Raszkiewicz owns shares in ANZ.  

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