6 April 2011
Today’s release of the new report by KPMG & ACFS highlights that Australia’s structural reliance on international wholesale capital markets to fund our economy further strengthens the calls for fairer tax treatment for Australian savers to be on the agenda for the Treasurer’s Tax Forum, says NAB.
The report which examines the unique nature of bank funding in Australia identifies the ‘substantial reliance on international wholesale capital markets funding’ as a potential cause of concern for the funding of Australia’s banking system.
The report also notes that since the GFC, the increased cost of offshore wholesale funding has resulted in increased pressure on interest rates.
“This is why changes to the tax treatment of deposits in Australia which provide a fairer deal for Australian savers and help develop a stronger domestic deposit market should be high on the agenda at the Tax Forum,” said NAB Executive Director of Finance, Mark Joiner.
“Developing a stronger deposit market and a fairer tax treatment for Australian savers could help relieve some of Australia’s offshore funding burden and the extra pressure it can put on interest rates” said Mr Joiner.
Mr Joiner said domestic savings rates have not kept pace with credit growth. Nearly all growth is coming from offshore. Australian bank’s foreign liabilities have increased from 7% in 1990 to 24% in 2010.
“This represents a long term structural challenge for Australia’s economy and our ability to fund economic growth, create wealth and improve national living standards,” he said.
Currently there are tax breaks in place for most asset classes - shares get dividend frankings, superannuation is taxed concessionally and property can be negatively geared. However there is no such tax support for deposits and the Australian savers who use them.
Mr Joiner said the Government’s proposal to allow financial institutions to issue covered bonds is a welcome development and a good start, however, it is not on its own the solution to the funding issues Australia is currently facing.
The Henry Tax Review advocated reforms to the tax treatment of deposits as in the national interest.
It is time to make some real policy progress on this issue and the October Tax Forum is the place to do it.
“Better tax treatment for Australian savers would be good news for savers, good news for borrowers, and good for Australia’s economy,” said Mr Joiner.
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