Tax Liabilities

One of the key announcements in the latest Australian Government budget has been to implement a tax on banks who have assets over AUD$100 million. Currently this would only affect the five biggest banks in the country. The tax comes in at 0.06% of the amount of liabilities. This does not sounds like a lot, but is expected to raise about AUD$6.2 billion over four years. Whether it is that successful, remains to be seen.

What I am most interested in is how the Government has sold this idea. By taxing liabilities, it sounds at first glance, that the banks are being punished for something bad. After all liabilities are considered "bad" in most cases. It is something that liabilities are a net obligation owed to someone else. In this case it is the bank's deposits. That is right, the government is taxing deposits. This tax will decrease the interest rate that banks are currently paying for deposits. If you have a savings account, you will receive a lower interest rate at one of the big five banks compared to a smaller bank. These banks will find it harder to compete for deposits or they will have to earn a lower interest spread decreasing profit. Either way this tax makes the big four banks less sound. We all know what happens when a large lender has financial problems. I am not implying this tax will lead to this, but is this really the best way to raise more revenue?