Budget 2017: How much will bank fees change?

Angus Kidman 9 May 2017 NEWS

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Will new bank levies end up imposed as customer fees?

What's changing?

As part of the 2017 budget, the federal government is planning to introduce a new levy for banks which have liabilities of more than $100 billion. That means, in practice, it's largely aimed at the Big Four (ANZ, Commonwealth, NAB and Westpac) rather than smaller banks. The levy is expected to raise $6.2 billion over four years. There are also new higher penalties for banks that undertake risky behaviour.

The levy is not being imposed on ordinary bank deposits or on mortgages held by Australians. That means that, at least in theory, there would be no justification for banks to try and pass those costs back to consumers in the shape of alternative fees.

FULL GUIDE: How Budget 2017 will affect you

Who will this affect?

Initially, this should only impact bank profit and loss statements (and their shareholders). The concern is that banks might try to offset the levy by increasing fees in other areas to maintain their profitability.

Until we see the full enabling legislation, it won't be clear what restrictions (if any) will be put in place to discourage that. The general mortgage rates that banks set are not subject to regulation, however; banks can charge whatever they think the market can bear.

So in theory, a bank might choose to increase its interest rates to limit the impact of the levy. One back-of-the-envelope calculation by Goldman Sachs suggests that the levy could be offset by a 0.14% rate increase across the mortgage books of affected banks, according to Business Insider.

However, there are sound reasons for banks not to do that. Since the levy doesn't impact smaller banks and alternative lenders, that would potentially make them much more competitive. In the current market, a built-in 0.14% advantage would not make sense commercially.

Ultimately, we won't know the impact on fees until the legislation is actually introduced, and even then it's far from clear how banks will react. For consumers, the best defence remains, as ever, hunting carefully for the best rate and reviewing it regularly.

When will the changes happen?

The changes will need to pass through Parliament. While the banks may well mount a campaign against them, there have been calls across multiple parties for deeper investigations into the banking sector and tougher regulations, so it seems likely they will pass in some form.

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