Budget’s big bank levy could open the door for fintech lenders
In the 2017 Budget announcement, Treasurer Scott Morrison announced a 0.06% annual levy on key funding sources for Australia’s major banks - a cost that could be passed on to Aussie borrowers and may drive them toward alternate lending sources.
The levy will apply to funding sources such as corporate bonds and large deposits and will only affect banks with debts above $100 billion - effectively limiting it to big players the Commonwealth Bank, Westpac, NAB, ANZ and Macquarie.
"This represents a fair contribution to the community from our major banks, is consistent with other advanced countries and helps foster competition from smaller banks," according to budget papers.
If it passes Parliament, the new levy will be introduced on 1 July, and is expected to cost the banks around $6.2 billion over the next four years. At $1.5 billion each year, that’s less than 5% of the major banks combined $30 billion annual profits.
But because the major banks control such a large portion of the Australian loan market, there are concerns that that cost may wind up being passed back down to customers in the form of further rate hikes.
Westpac Group CEO, Brian Hartzer, said, "The Australian banks are already the largest taxpayers, with Westpac the country’s second largest taxpayer. Westpac already pays over 30% of its profits in tax and this will now increase even further."
He said that ultimately, the cost of the new tax would be "borne by shareholders, borrowers, depositors, and employees."
For Aussies looking for personal loans, one way to avoid footing the bill for the big bank levy is to look outside the major banks when borrowing, and consider smaller non-bank, online or peer-to-peer lenders.
Peer-to-peer lender RateSetter welcomed the Budget reforms, with CEO Daniel Foggo saying fintech companies could play an important role in driving the kind of competition the government is promoting.
“In requiring big banks to give consumers greater control over their own data, the government has stood up to the banking sector lobbyists and shown it's serious about boosting competition in financial services in Australia,” he said.
“In simple terms, this measure will help break down the huge advantage big banks have over innovative new entrants and make it significantly easier and faster for consumers and small businesses to switch to providers like RateSetter who can offer a much better deal.”
If you’re looking for a personal loan, be sure to check out our peer-to-peer comparison table and crunch the numbers with our personal loan calculator to see how much you could save by opting for an alternative to the big banks.