Treasurer Scott Morrison introduced the Major Bank Levy Bill 2017 (Cth) and Treasury Laws Amendment (Major Bank Levy) Bill 2017 (Cth) into the House of Representatives on 30 May 2017, as part of the Federal Government’s strategy to return the budget to surplus. The 0.06% per annum bank levy will apply to “Authorised Deposit-taking Institutions” (ADIs) with licensed entity liabilities of at least $100 billion from 1 July 2017, which means that it is likely that only the “big five” Australian banks — NAB, Westpac, Commonwealth Bank, ANZ and Macquarie — will be liable to pay the levy. If passed, the Government expects the levy to raise $6.2 billion dollars over the next four years.
The impact of the levy on the banks and certain new anti-avoidance provisions are covered by our banking colleagues in this alert.
This post focuses on the possible impact to consumers from the bank levy having regard to new powers being given to the ACCC in conjunction with the levy; namely:
- a specific mandate to monitor the charges that major banks impose in relation to residential mortgage products after the levy is implemented (mortgage inquiry); and
- an extra $13.2 million of funding to establish a specialist unit that will focus on competition issues in the financial sector over the next four years (special unit).
What is the mortgage inquiry?
The ACCC will conduct an inquiry into the pricing of residential mortgages until 30 June 2018, including monitoring the extent to which the banks pass on the new levy to their customers. In particular, the ACCC will monitor and report on interest rates and other charges imposed by affected banks in relation to residential mortgage products following the introduction of the levy.
As the inquiry will be run under Part VII of the Competition and Consumer Act 2010 (Cth) (Act), the ACCC will be able to rely on its statutory information gathering powers where it has reason to believe that a person is capable of giving information or producing documents relevant to, the inquiry, as well as the ability to issue summonses to give evidence on oath. This is a broader power than under the ACCC’s general information gathering powers (for example, under section 155 of the Act) which is only exercisable where the Commission has identified a matter that constitutes, or may constitute, a contravention of this Act.
The mortgage inquiry will not however give the ACCC the express power to stop banks from passing the levy onto consumers.
What is the special unit?
The proposed ACCC special unit will undertake regular in-depth inquiries into competition issues in the financial sector more broadly.
The ACCC has acknowledged that its focus in the sector so far has been issue specific rather than holistic, largely because it has been “very conscious that the RBA, APRA and ASIC are closely observing the banks”.
The $13.2 million in additional funding is designed to plug a perceived gap in Australia’s regulatory framework and aligns with the House of Representatives Standing Committee on Economics’ recommendations following its Review of the Four Major Banks.
Who is expected to bear the cost of the levy?
Treasurer Scott Morrison insists that the major banks can “absorb” the estimated $1.5 billion yearly levy without passing the cost onto consumers. Further, the Government believes that the tax will promote competition and benefit consumers because:
- it will force the major banks to compete over market share based on how little of the costs they pass onto consumers; and
- it will make smaller banks and other financial lenders more competitive.
ACCC Chairman Rod Sims believes that the mortgage inquiry may deter banks from passing on the costs of the levy because the ACCC would be able to release to the public internal discussions about such a move. In addition, the Government expects the mortgage inquiry will provide customers with independent information that might influence them switch to another bank if they are dissatisfied with how their bank has responded to the levy.
Some commentators, such as Goldman Sachs, believe that the mortgage inquiry will have the intended effect of deterring the banks from passing on the costs of the levy, because it would limit the banks’ ability to offset the impact of the levy via mortgage repricing. A leading banking analyst has also said that the levy’s design makes it difficult for banks to pass on the costs through increasing interest rates on mortgages or cutting deposit rates.
We will keep you updated as the inquiry progresses.