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BSB 806 015

Deposit levy coming for Aussie savings accounts

29 Jun2015

Australians who are concerned about what a proposed deposit levy would do to their savings accounts will be heartened to hear about a new campaign launched by the Customer Owned Banking Association (COBA).

On July 15, COBA launched its Save Your Savings campaign, opposing the levying of a deposit tax on Australians' bank accounts.

The campaign comes as a response to the Commonwealth government's May 2015 budget, which confirmed the tax was on the table after months of talk, as well as COBA's recent research that indicates more than three quarters (79 per cent) of Australians oppose the savings tax.

COBA are encouraging Australians to keep an eye on developments and make their voices heard, as the proposed tax will eventually have a significant impact on their current and future financial plans.

Aussie savings accounts can't stomach new tax

Recent research has indicated the importance to many Australians of holding on to as much of their savings as possible.

A COBA-commissioned survey between June 5 and 8 questioned 1,020 respondents online about their savings accounts. According to the results, only 37 per cent of Australians are confident that they have enough savings for their future needs - with only 6 per cent feeling "very confident".

By contrast, 56 per cent of Australians are either not very or not at all confident about their savings.

This is no doubt partly due to the fact that Aussies have seen a slip in savings returns over the last few years. While ultra-low interest rates have meant taking out a home loan has been more affordable than ever, it has also meant diminishing returns from savings accounts.

According to the research, a little under half of all those polled believed current savings returns were not keeping up with inflation. Those thinking it was outpacing inflation measured a paltry 5 per cent.

In fact, there was a marked trend among respondents depending on their age. The survey indicates that the older individuals got, the more likely they were to view their savings accounts as underperforming.

This is not surprising. Inflation is a more pressing issue for older Australians, who are either approaching or are at the age where they must lean on what they've saved to put them through their retirement.

As well as providing an interesting insight into the mindset of Australian savers, the research is a good reminder that Australians will need all the savings they can muster if they want a secure and stable retirement.

The origins of the deposit tax

Australians who have been too busy saving for a home loan in Perth might well wonder what the deposit levy is.

The deposit levy would add a 0.05 per cent tax to deposits worth up to $250,000, with the aim of raising $500 million a year for the government.

The money raised would then be used to help insure banks against collapse. The government already guarantees deposits worth up to $250,000, but this fund would be used to cover any losses that might occur under this arrangement.

While no doubt well-meaning, the deposit levy is a good example of how even the best of intentions can potentially threaten Australians' financial futures.

For one, Australians' savings accounts are already highly taxed. As the government's own tax discussion paper noted back in March, savings accounts are taxed at full marginal rates without any consideration of inflation.

In fact, the independent Financial System Inquiry (FSI) stated openly that "returns from deposits are taxed unfavourably" - a fact that more than half of Aussies aren't aware of.

A new tax could therefore whittle away even more of Australians' hard-earned savings returns.

This is doubly significant given that bank savings accounts are one of the simplest and most common options for Australians' financial planning.

Mark Degotardi, CEO COBA have called the proposed levy "anti-saver" and charge that it will discourage Australians to put money away. They also point to the fact that David Murray's FSI has recommended against putting the tax in place.

Deposit levy significantly unpopular

The survey findings indicate that one doesn't need a degree in business to see how the tax could impact ordinary consumers.

When asked in April, 58 per cent of Australians said they opposed the levy, with 39 per cent strongly opposed. Two months later, this had climbed to 79 per cent opposed and 46 per cent strongly opposed.

In fact, most Australians (65 per cent) thought it was customers - not shareholders or banking institutions themselves - who would shoulder the cost of the levy.

What's more, nearly three-quarters of Australians believed that once introduced, the tax would increase later on.

This all indicates there is a significant groundswell of opposition to the measure, and its adoption is not inevitable.

Prior to launching the Save Your Savings campaign, COBA suggested that the government hold off from imposing the levy until its review of the tax system has finished.

Instead, COBA has recommended another set of measures that it feels would benefit consumers and smaller banking institutions more: Abandoning the levy, improving the tax treatment of deposits and reforming franking credit arrangements.

Aussie resistance to the tax is proof positive that the nation is taking its saving goals seriously, and has one eye on the future. Members are encouraged to contact their local MP to voice their opposition to this levy.

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