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BFCSA: Relationship between Australian Government and Big Banks now toxic. Malcolm Turnbull attacks Ken Henry

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Government slams Ken Henry as Labor-leaning, self-serving 'big bank boss'

Australian Financial ReviewMay 16 2017 8:49 PM

Phillip Coorey, Patrick Durkin

 

The relationship between the government and the big banks is now toxic after Malcolm Turnbull and his senior ministers rounded on NAB chairman Ken Henry as a Labor-leaning, self-serving "big bank boss'' and accused him of producing flawed policies in his former life as Treasury secretary.

As the government rejected the scathing critique of its bank tax and budget strategy by Dr Henry, the wrangle over the $6.2 billion hit on the big four banks plus Macquarie also sparked a row between Labor and the Greens.

While both say they will vote for the bank tax, ensuring its passage through the Senate in time for the July 1 start date, Labor leader Bill Shorten will back a Senate inquiry that will enable the banks to make one last public stand against the impost that they say will be passed on to customers, a politically-damaging line that Labor is keen to propagate.

Mr Shorten said Dr Henry's suggestion of a full-blown financial systems inquiry should also be considered.

"So, yes, there should be a Senate inquiry and we should seriously look at what it being proposed by Ken Henry," he said.

Greens banking spokesman Peter Whish-Wilson said while his party would support a routine and specific inquiry into the legislation, "we won't be supporting Bill Shorten playing politics with this issue and giving bank CEOs extra opportunities to delay, cry poor and tear down the bank levy".

'Terrible policy'

In a interview with The Australian Financial Review, Dr Henry said the bank tax was terrible policy, the implementation process was poor, especially as there was no consultation, and that the tax would have to be passed on.

He called for a review of the governance arrangements for the financial system because the bank taxalong with measures that allow regulators to have bankers sacked – has completed a process of disrupting the roles of the Reserve Bank of Australia, the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission.

He said it would leave the banks less resilient if there was another financial crisis.

Current Treasury secretary John Fraser wrote to the banks on Tuesday rejecting their accusations the bank tax was made up at the last minute.

"The levy's inclusion in the budget followed development as part of normal budget processes. Through those processes, careful consideration was given to the design of the levy, the costings and to its effect on the economy as well as the financial sector. This consideration drew on Australia's experience with and development of financial sector levies over a number of years and international experience," he said.

Dr Henry was Treasury secretary from 2001 until 2011, serving both Coalition and Labor governments and is now NAB chairman.

Mr Turnbull said Dr Henry was just doing his job in defending his bank and was exaggerating the effect of the tax.

"Look, he is talking his own book right, he is the chairman of a bank, he knows as well as I do that the banks can well afford to pay this," he said.

"We are talking about a levy that would cost the big banks about $1.5 billion a year. They have $33 billion of after tax profits."

Morrison disputes claim

Treasurer Scott Morrison disputed his claim about the RBA being undermined saying APRA and the RBA were consulted "well in advance of the budget".

"It was banks themselves who suggested the regulatory agency that was best placed to support our new executive accountability regime should be APRA."

Mr Morrison also said Dr Henry talking his own book.

"Big bank boss Ken Henry says don't have us pay more tax. It is hardly a surprising headline. Ken Henry is welcome to his view," Mr Morrison said.

Mr Morrison said Dr Henry, as Treasury secretary, advocated a tax on bank deposits and a mining tax that raised no money.

But this backfired when it emerged Dr Henry had left Treasury by 2013 when Labor attempted a bank deposits tax. Dr Henry designed the first mining tax but after Labor panicked and dumped Kevin Rudd as prime minister, it renegotiated the tax with the big miners and Treasury was largely excluded.

Immigration Minister Peter Dutton went after Dr Henry and accused him of political bias.

"He's the chair of NAB and there won't be much that a Liberal government can do that Ken Henry will be happy with, but ultimately he doesn't want to see any levy or tax on the banks and that's obvious," he said.

Budget repairs

Writing in today's Financial Review, former Origin Energy chief executive and now Business Council of Australia president Grant King echoed Dr Henry's sentiment on budget repair.

He said with all parties now believing tax increases were the way back to surplus, "the level of tax required to balance the budget and sustainably deliver the safety net that genuinely disadvantaged Australians rely on would cripple Australian households and businesses".

"What differentiates this budget from previous ones is that we've let the proverbial genie out of the bottle by relying on tax increases to restore the budget. Having done so, we are already hearing calls from the opposition and others to further raise taxes. For example, there shouldn't be any debate about who will pay for the bank levy; Australians will pay whether they are shareholders, customers or employees," he says.

"If this is the budget we had to have, it is because of the Parliament that we have got. In its detail, this budget reveals that the only party with any prospect of delivering a surplus is business."

Former Treasurer Peter Costello said the tax was needed because spending was not being reined in but he said there was no doubt the banks would pass it on

"The best assurance that you ever have against new taxes or damaging taxes is a government that's living within its means and we haven't had a government living within its means since 2007, that's the problem and whilst spending is exceeding revenue we are always going to be at risk of new taxes being introduced," he said.

"It probably will be very effective in raising revenue but you know the banks are big enough and ugly enough to look after themselves, it's their argument. These are enormously profitable institutions and if they want to take on the government they're perfectly entitled to.

 "Ken Henry is the chairman of the company, he's entitled to speak for the interest of his company, which he's doing. Australian banks are very strong, I don't think we need to worry about them in the immediate future."

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