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COBA chief executive Mark Degotardi said any changes to the tax system need to be considered in a holistic fashion.
“Our submission to the tax review focuses on ways we can improve the tax treatment of deposits, not add to the burden of Australian savers,” he said.
“Current arrangements are punitive for savers who are already facing record-low interest rates, and a new tax will only make things worse.”
COBA has made three key recommendations in its submission to the federal government’s tax discussion paper.
The first recommendation calls for an improvement in the tax treatment of deposits relative to other savings options.
The second recommendation is for the government not to increase the tax rate applied to deposits through the introduction of a new deposit levy.
The association also wants reform of franking credit arrangements to ensure that customer-owned institutions are not unfairly disadvantaged compared to listed banks.
Mr Degotardi said there is no strong policy case for a deposit tax, but it will hit consumers and have a detrimental effect on competitive neutrality in the banking sector.
“This tax has a bigger impact on smaller institutions, given their higher reliance on retail deposits compared to the big four banks,” he said.