There’s a deep fear in the Australian psyche that makes the Bank Levy a political knock-out.
The more I look at it, the more the Bank Levy looks like a significant turning point.
One of the things that surprised me during the Rudd / Gillard years was how easy it was for the mining industry to kill off the Super Profits tax.
A relatively cheap PR campaign, a few full-page ads, a couple of pollies in the pocket and bang, it was gone.
Their campaign was so effective (and so cost effective) it has now become the standard in resisting government regulation.
And so now everyone is wondering if the banks could pull off something similar with ScoMo’s Bank Levy. Are they going to try?
Even if they spent a billion dollars, which would be an epic media onslaught, if they ended up saving themselves $6 billion, it would still be a great return on investment.
So they’ve certainly got the means and the motivation.
And on the face of it, it should be easy. The mining industry employs relatively few people, and is something like 85% foreign-owned.
The banking industry employs twice as many people as mining, and is Australian-owned by law. On the economics of it, it is much easier to make the “killing our jobs” case for banking.
So it’s a done deal right? The banks will fight and the banks will win, right?
Hardly. In fact, I haven’t heard a single person who thinks the banks could fight this one back. Most wonder if they’ll even bother trying.
It is true that the political context matters here. With the mining tax, there was an brutally effective opposition at the ready to prosecute the case for the mining industry.
In contrast, Labor has already campaigned hard against the banks, and has said they won’t be fighting this one. (What choice do they have?)
So the banks are up against a rare bipartisanship. That doesn’t help.
And it is also true that banks are on the nose pretty badly these days. There’s been a string of scandals recently. And not just the ones that involve rigging obscure market rates and ripping each other off. They’ve been personal. Real people have been overcharged, denied valid insurance claims, received bad investment advice, or had they mortgages unfairly foreclosed.
The mining industry might not be the greenest, cleanest industry in town, but compared to the banks, they’re model citizens.
And you’ve also got to remember the battler-bludger polarity in Australian politics. The more you can cast yourself as a battler, or pro-battler, the more votes you’ll get.
For the mining industry, this was an easy call. Mining is hard yakka. It involves real work – hot, dirty work out in the middle of nowhere. It involves big trucks and work-boots and hard-hats.
In a digital age, it’s one of the most ‘real’ industries we have left. Total battler country.
Compare that with banking. Banking involves sitting in an air-conditioned office and pushing buttons on a computer.
Other than blogging about property and macro-economics, work doesn’t get much cushier than that.
And banking is not real work. In that, it doesn’t make real things.
Finance plays a unique role in our economy – it’s a facilitator. It connects people with money with the people who need it, to make economic activity happen.
But it is not economic activity itself (even though it’s counted that way). And I think what we have to realise is that if our finance sector is growing (which it has been), then that means our economy is becoming LESS efficient.
That is, if the finance share of the economy is growing, it means we need more finance for the same level of output.
That’s not a good thing.
And I think there’s a danger that our economies tilt towards shuffling money around rather than putting that money to work. Think about the ever-expanding markets in derivatives of derivatives of derivatives.
People make money, but no one is better off.
Such is the nature of banking.
And I think the ancients cottoned on to this. Usury (making money by holding debt over people) wasn’t just illegal, it was immoral.
If you made your living by doing nothing but holding debts over others, you weren’t really contributing to society.
What’s worse, combined with a tendency for power and money to accumulate, you had the potential to create a dangerous parasite.
I think finance in the modern world has reached parasitic proportions. That is, it draws more energy from the economy that it gives back in return – which is why we see it growing and growing.
And I think people are genuinely worried about this.
Don’t get me wrong. Finance is an essential service. We need it. But this need is what gives the finance sector its power.
When you combine it’s essential nature (up there with air, water and wifi), with a parasitic tendency and a concentration of power, and you have something that people are genuinely worried about.
… even if they haven’t been able to name it until now.
So I think this is not just about the recent scandals. Those scandals just make this fear tangible – the fear that we’re living with a monster that we can no longer control.
This is the fear that the Bank Levy plays to.
And it’s why it’s such a political winner.
That said, I’m not sure random taxes here and there really address the issue. But I think it is a very interesting change in the game.
This is about making people feel like their fears are justified after-all, and validating the belief that the people should be able to control the finance sector that serves them.
(What a dangerous idea!)
As far as the banks are concerned this is what will scare them. Money is just money. But if the public believes they have the right to control them? Oh boy, look out.
So they’ll fight it tooth and nail.
But if what I’m saying is true, expect to see a war for the ‘story’. They’ll need to reframe this in a way that is not about the public bringing them to heel – they just can’t allow us to take that power.
It will be interesting to see how the narrative evolves.
Watch this space.
If you were the banks, how would you play it? (Assume maximum evil.)
I am sure banks will fight back, what have they got to loose? Already hated by the public, and $6billion is a lot to pay.
Why do they need to fight back? Just pass the costs on to the customers as usual – you can be sure the 6bn will not be coming out of their pocket. 25 basis points on investor home loans (just to keep the investors under control of course – nothing to do with profit), a few dollars a month on account fees (they have been the same for years – CPI increase, nothing to do with profit) and the government can have its fee and bank still has record profit – no worries!
The Mining Tax was a shit-tax. It raised very little money and was imposed on an industry that couldn’t pass on the cost to its customers. The banks can and would. As both a mortgager and a shareholder to banks, I’ve no doubt they will use this levy as an excuse to increase interest rates and decrease dividends. They are already trying to force me out of my IO loans and into P&I loans. That would double monthly loan payments and cause me financial embarrassment.
The mining industry doesn’t employ a lot of people directly but I assure you there are a lot more people employed as contractors, sub-contractors, consultants and off-site service providers. Instead of about 2% directly of the nation’s employees that adds up to about 10%. Mining returns a lot of export income while our big banks are mostly locally focussed. Mining is almost entirely within regional areas providing valuable regional employment, income and business stimulus to many regional towns.
The banks are city based and focussed. In recent decades they have been withdrawing branches from regional areas, reducing employee numbers with automation/computerisation and either reducing services or looking at putting extra charges on providing those services. All of them are trying to coerce customers into internet banking rather than branch service. Their interest rates on credit cards are daylight robbery. They give huge bonuses and share options to Executives. But they all squealed like stuck pigs within minutes of the Budget announcement.
Having said all that, it is still inappropriate to selectively tax specific industries just because you perceive them as being very profitable.
Outstanding article Jon. You have put your finger on the main game since the Australian government first established its own “Commonwealth Bank” in 1911 to bring private banks to heel. Private banks kept chipping away until they found Keating willing to privatize CBA in 1991 on the pretext that it was “a threat to banking competition.”
The torment and suffering of millions during the 1929-39 depression focused everyone’s attention on the extraordinary power of banks. That led to Australia’s “Royal Commission appointed to inquire into the monetary and banking systems at present in operation in Australia (1935–1937)”.
The report of the Royal Commission clearly sets out how governments license private banks to monopolize the issue of credit in the form of debt. This is breathtaking when you realize that people, not banks, generate the community’s credit. We build that credit (from the Latin credo “I believe”) by honoring contracts, paying bills on time, paying taxes, giving a fair day’s work for a fair day’s pay, building roads, railways, bridges, dams and a multitude of other things that supply the “credo” (the belief) that underpins every economic transaction.
Private enterprise is the powerhouse of prosperity. But financial capitalism licensed and guaranteed by government is a parasite that is sucking the life out of private enterprise. It really is time for a very different approach to providing the finance so essential to private enterprise.
Peer to peer lending is already on the rise. This will continue to increase until a significant percentage of people seeking funds bypass the banks altogether.
As things like cyber currencies become more mainstream, this will further reduce the need for banks.
Banks need to reinvent themselves as relevant as they increasingly become irrelevant. The way people work is changing, with casual and part time work becoming more common (which greatly contributes to underemployment). As more people are made redundant, they start up their own small and micro businesses working for themselves. Banks currently don’t cater for that type of loan applicant.
Time for both a Royal Commission into the banking sector again, and for banks themselves to change. The big four at least, and possibly more, see themselves as “too big to fail”. Well I for one, as a taxpayer, will not be happy to bail them out should they overextend themselves through bad decisions driven by greed.
Unfortunately, Kathy banks are too big to fail under the current system. Every government knows that if it let them fail, the whole economy would fail and the government would be unceremoniously kicked out of office.