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Major bank levy will affect borrowers, warn CEOs

 

 

Major bank levy will affect borrowers, warn CEOs

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— 7 minute read

The heads of some of the major banks have warned that it is likely borrowers will be impacted by the new bank levy announced in the federal budget.

On Tuesday evening, the Hon. Scott Morrison MP, Treasurer of the Commonwealth of Australia revealed the federal budget for 2017-18, which included — among other measures targeting banks – a new ‘tax’ for major banks.

From 1 July 2017, the government will impose a quarterly 0.015 per cent levy on an ADI’s licensed entity liabilities, provided that the ADI has liabilities of at least $100 billion.

Liabilities subject to the levy will include, for example: corporate bonds; commercial paper; certificates of deposit; and Tier 2 capital instruments.

The $100 billion threshold will be indexed to grow in line with nominal Gross Domestic Product.

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Mr Morrison said that “customer deposits of less than $250,000 and additional capital requirements imposed on the banks by regulatory authorities are excluded from their assessed liabilities” and added that “unlike the previous bank deposit tax, this is specifically not a levy on pensioners’ and others’ ordinary deposit accounts, nor is it on home loans”.

It is expected that the new levy will raise up to $6.2 billion.

There are five major banks that will be affected by the levy:

  • ANZ
  • Commonwealth Bank of Australia
  • NAB; 
  • Macquarie; and
  • Westpac.

Speculation that this levy would be part of the budget announcement saw almost $14 billion wiped off the banks’ stocks on Tuesday.

‘A tax cannot be absorbed’

Several heads of the banks have hit out at the new levy, warning that any additional costs will need to be borne by borrowers.

Speaking yesterday, NAB CEO Andrew Thorburn stated: “The major bank tax will impact millions of everyday Australians who are employees, customers or shareholders of banks.

“It is not just a tax on a bank. It is a tax on every Australian who benefits from, and is part of, our industry.

“These people include: the 10 million NAB customers – depositors and borrowers; the 570,000 direct NAB shareholders – retirees, and mums and dads who are building their nest egg for the future – as well as the millions of Australians who own shares in NAB through their superannuation; the more than 1,700 suppliers to NAB; and the 34,000 people who work at NAB and serve our customers.”

He emphasised: “A tax cannot be absorbed. This tax is borne by these people. It is not possible to impose a tax without an impact on people, and therefore the wider community.

“While we wait for further information about how this tax is proposed to work, our focus at NAB remains on supporting our customers during what is a critical time in the Australian economy.”

Similarly, Ian Narev, CEO of Commonwealth Bank said that the banks will “need to take some time to work through the implications” of the new levy, “particularly so given the lack of detail and the absence of any consultation”.

He added: “However, as every business owner or employee knows, every extra cost needs to be borne by customers or shareholders, or a combination of both.  

"We look forward to Treasury outlining how this tax will apply in practice.”

Mr Narev said that once the bank had received all the details on the new tax, CBA would “do [its] best to strike the right balance” to ensure it “continue[s] to enhance the financial wellbeing of people, businesses and communities".

Tax move is ‘disappointing’

Likewise, Westpac group CEO Brian Hartzer said the new bank tax is “a hit on the retirement savings of millions of Australians as well as all bank customers”.

He warned that the “stealth tax” will make Australia’s banks less competitive.

Mr Hartzer commented: “Yesterday, $14 billion of value was wiped off Australian bank shares because of speculation around this new tax.

“There is no ‘magic pudding’ [like in the children’s book]. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees.”

The Westpac CEO added that the Australian banks are already the largest taxpayers, with Westpac being the country’s second largest taxpayer (paying more than 30 per cent of its profits in tax).

He continued: “While similar taxes operate in other international jurisdictions, they were introduced to recover the cost of governments having to take over their banks. No taxpayer funds have been used to prop-up the Australian banks. In addition, international jurisdictions that apply measures such as this already have much lower corporate tax rates than Australia – for example, in the UK the corporate tax rate is 20 per cent.”

Mr Hartzer said it was “disappointing” that the federal government had “implicitly favoured large foreign banks over Australian banks operating in their home market”.

“In addition,” he said, “these reforms are directly counter to APRA’s objective of making the banks unquestionably strong, as higher taxes reduce the banks’ ability to generate capital that supports lending and stability in times of stress.”

ANZ has noted that the tax will be “the subject of briefings by the Australian government in the coming days and of continuing analysis by ANZ”.

The bank added: “At this stage, it is too early to provide a definitive estimate of the financial impact on ANZ and an update will be provided to the market when ANZ’s analysis is complete”.

Levy is 'regrettable policy'

ANZ CEO Shayne Elliott has said that the new bank tax is "regrettable policy", adding that he believed it was really "a tax on the millions of ordinary Australians who are bank shareholders and bank customers".

Adding that the banking sector is already the largest taxpayer in corporate Australia, and has "significantly strengthened its capital and liquidity base to ensure it is unquestionably strong and does not have to rely on implicit guarantees from government", Mr Elliott said that the bank believed the "initial public support for the tax will prove to be misplaced".

Mr Elliott commented: "[T]he speed [in] which it is likely to pass into law highlights how divisive the banking industry’s relationship with many in Parliament and the broader community has become.

“While the banking industry has made itself an easy political target, the industry is taking action to significantly improve its relationship with customers and the community.

“It is now time for all our leaders to move on from populist bank bashing so we can work constructively with Parliament and policy makers on how we can best support the Australian economy,” Mr Elliott said.

Likewise, Macquarie has said that the impact on the bank is “unclear” at this stage, adding that it is “uncertain whether the proposed levy will apply to Macquarie Bank Limited's statutory liabilities, funded balance sheet or whether liabilities relating to foreign business or subsidiaries will also be included”.

[Related: Big four bank breaks rank on broker channel growth]

Major bank levy will affect borrowers, warn CEOs
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