As you may recall, the bank deposit levy was a pre-election Labor policy that had bipartisan support of the Coalition. However, following the change in Government, it was deferred and then ultimately referred to the Financial System Inquiry chaired by David Murray (currently being undertaken).
The intention of the policy was to establish a financial stability fund that could be used in the event that a bank should fail. Whilst the banking sector has been strongly opposed to the policy, it is important to bear in mind that Australia is one of only a few G20 countries that does not have some form of levy-based deposit insurance scheme. A financial stability fund was also previously recommended by the IMF in its 2012 review of Australia’s financial sector.
Under the previously announced policy, a levy of 0.05 percent was to apply to all bank and credit union deposits of up to $250,000 per account, commencing from 1 January 2016. Whilst the levy was to be imposed on the institution, it is expected that it would naturally be passed onto the customer though lower deposit rates.
The interim report into the Financial System Inquiry is due to be released on 15 July and we expect it will include preliminary recommendations regarding the bank deposit levy. If the banks have done an effective job in their lobbying efforts then we expect that the report will grant their reprieve. But for now, it’s all eyes on the release of the interim report.