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New Bank Tax: The Low Down

Last Friday, I wrote this article suggesting something was going on with Bank share prices.

Based on that technical research, I recommended and advised my clients last Thursday evening, those who I either manage share market portfolios for or provide advice to that if Commonwealth Bank (ASX:CBA) shares were down on Friday 5th May, to significantly reduce (take profit) on those holdings.

Vector (Direction) Right, Reason Wrong
In that article last week, I speculated at a list of reasons why this was the case. My list of potential reasons was wrong. Who was to know about this bank tax apart from politicians and their mates who were clearly (according to the chart) selling their bank shares.

Even though my guess at a reason was wrong, it was the right call based on my technical chart research to sell or reduce bank share holdings.

Here is an updated short-term Commonwealth Bank (ASX:CBA) for reference

 

Comparison to the Minerals Resource Rent Tax (MRRT)
Do you remember the Minerals Resource Rent Tax (MRRT)?
In May 2011, the announcement of the MRRT by the Australian government signalled the post GFC Top for the Australian mining boom and also the share prices of our large Miners.

This chart of the Australian Materials Index highlights this MRRT top

 

History of Taxes
If you study the history of taxes and how taxes began, they were designed as a mechanism to take money from the rich and give to the poor.

In May 2011, the Australian government decided to put a “super profits tax” on our big miners. And overnight, they have decided to put a tax on the “Big 5 Banks” because “they can afford it”.

Perhaps with $30 Billion of Profits per annum, the Big Banks can afford to pay a new $1.5 Billion tax.

All Not Lost
All is not lost for shareholders of our banks. Unlike the mining sector who had no one to pass the cost of the MRRT on to.

Our banks will find a way to pass this tax on to consumers. They have many levers at their disposal such as:
1. Increases in home loan rates
2. Increases or new “account keeping fees”
3. Increases to withdrawal costs at ATM’s or
4. Lowering term deposit rates

At the End of the Day
At the end of the day, this new Bank Tax will be a tax paid by any Australian with a bank account. And, the markets will sort out the share prices of our big banks accordingly.

The information provided in this article is intended for general use only. The article is intended to provide educational information only. Please be aware that investing involves the risk of capital loss. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information herein.

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