The Australian government is thinking of introducing a law that taxes bank deposits. Even though they sidestepped the issue in this year’s budget, it remains on the table. That’s because the government thinks it’s necessary to tax your savings. They’re punishing you for having the nerve to hold cash assets at a bank.
The past week hasn’t been good for savers. Your cash savings are already being squeezed. The RBA lowered interest rates last week by 0.25% to 2%. As interest rates go lower, the interest you earn on savings decreases. Now you might have a tax on savings to worry about as well. The amount of interest you’ll lose out on will depend on how much in savings you have. But whether you have a lot or a little, your savings will be worse off for it.
This puts you in a difficult position if you’re relying on cash assets like term deposits for your income. That’s key for retirees who often have most of their assets in cash.
It’s believed that the government will raise more than $400 million a year through the new tax. Basically, part of the interest you might have earned on your savings is now going to the government.
The last time there was a tax on bank deposits was more than a decade ago. But that was when interest rates hovered around 6%. At least back then the higher interest on your savings could cushion the blow of a tax on bank deposits.
Both the Coalition government and the Labor party are to blame for this new tax. That’s because the Abbott government nicked the idea from Labor, who first proposed it in 2013. Labor wanted to target people with savings up to $250,000 if they were elected.
It’s assumed the Coalition’s take on the bank deposit tax will be similar to Labor’s. That’s because the Coalition’s $400 million tax projection is close to what Labor thought they could generate. But we’ll still have to wait to find out the details of the Coalition’s proposal.
Pressed with the need to plug holes in the deficit, the Coalition is ready to announce the law as part of this year’s budget. With both parties clamouring for the law’s introduction, it seems like it’s here to stay.
The Australian government is framing the tax as a way to help banks from collapse
The Coalition government is using typical scare tactics to convince voters of the benefits of the new tax. They’re presenting it as a means to cushion the fallout of a potential banking collapse for savers. But critics rightly point out that existing protections measures, to prevent savers from a banking collapse, already exist.
Australian banks have one of the highest capital requirements in the world. And they’re regulated strictly by authorities like APRA. In fact while banks around the world were collapsing during the GFC, Aussie banks remained resilient.
Australia also has an existing law governing bank collapses. It’s called the depositor preference. It ensures that in the event a bank does collapse, depositors are the first people to get money out of the assets of that bank.
So this has nothing to do with any protection scheme. It only serves to move your savings into government coffers.
Contributor, Markets and Money
PS: Investors with cash savings have had a bad week. It seems like a day doesn’t go by without some new policy targeting savers. But they aren’t the only ones being gouged with fees and taxes. The superannuation industry is also rife with abuse. Many Australian superannuation funds are affected by hidden fees that steal money from people’s retirement.
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