Clancy Yeates and Eric Johnston | Sydney Morning Herald | February 22, 2011
http://www.smh.com.au/business/treasury-warns-fees-plan-risks-more-costs-for-customers-20110221-1b2ij.html

Treasury has told the government that key elements of its plan to lift banking competition could have the perverse effect of raising costs for customers.

Documents released under freedom of information laws show that as the federal government considered how to boost competition, it was told higher costs could result from banning mortgage exit fees and requiring banks to make account numbers portable.

After extensive briefings in October and November, the Treasurer, Wayne Swan, proceeded with the ban on exit fees in December and announced an investigation into account number portability.

Advertisement: Story continues below According to internal emails, Treasury said a downside of the mortgage fee ban was that banks would simply make up for any lost revenue by raising interest rates or increasing other fees.

Although the ban would make it easier for people to switch banks, the emails say, higher fees would penalise consumers with no intention of switching, who would be subsiding the ''switchers''.

Treasury also warned that forcing banks to issue a unique account number - often touted as a way of allowing people to change banks more easily - could raise costs for banks, and therefore users.

''While attractive from a competition perspective, the introduction of account number portability would likely impose significant up-front costs on financial institutions, employers and retailers, which would be passed on to consumers,'' a briefing document says.

Noting a 2008 parliamentary review into account number portability, it says Australia already has a relatively high rate of account switching compared with other nations.

Treasury also pointed to ''consumer inertia and apathy'' and said it was ''unclear'' whether the account portability changes would increase switching by users.

The Reserve Bank had also advised that it would be a ''very difficult'' case to make to regulate to require banks to provide account number portability, Treasury said.

A former Reserve Bank governor, Bernie Fraser, is carrying out a review of account number portability, about which banks have also complained.

Treasury also considered but later backed down on a proposal to provide a bigger tax break on deposits, which would have made savings attractive compared to other assets such as shares or superannuation, while boosting funding for banks.

Last year Mr Swan announced plans for savers to earn a 50 per cent discount on interest earnings on savings up to $1000.

Last year's Henry tax review had recommended a 40 per cent discount on income from interest, but did not propose a cap on savings.