Big bank tax to cost average $241 million each. Guess who’s footing the bill?
Australia’s big 4 banks have commented on the implications of the Budget’s big bank tax, estimating it will cost them each an average $241 million after tax. But it’s unlikely the cost will touch bank or shareholder profits.
Although the banks pointed out in their statements that legislation had not been finalised and there was limited information available on which to base estimates, each expected the financial impact of the proposed levy to reach into the hundreds of millions.
Expected to be applied from 1 July 2017, the true impact of the tax will likely be apparent in the full year 2017 financial results of each bank.
Estimated cost of big bank levy
The big banks have made it clear since the beginning that the new tax would not - and could not - be “absorbed” and the cost would have to be passed on somewhere. So one of the big questions was how the new levy would affect bank customers and shareholders.
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In a letter to shareholders, NAB Chairman Ken Henry outlined some of the ways the bank could “manage the cost” of the new tax.
“We could reduce what we spend with our more than 1700 suppliers….We could increase the rates we charge borrowers or reduce the rates we pay savers….We could invest less in our workforce….Or we could allow this new tax to affect our profitability. This would impact our shareholders,” he said.
He then went on to say NAB would “continue to advocate for you, our shareholders,” presumably indicating that the other groups mentioned - 10 million customers, 34,000 employees and suppliers of the bank, many of which are small businesses - would be wearing the cost instead.
Banks have broadly described the levy – designed to generate $6.2 billion in revenue over four years by taxing funding sources of Australia’s largest banks – as an ill-thought out policy. Many are pushing back against the tax in public responses.
“We are concerned the tax has been developed without sufficient consultation or consideration of the impact on bank customers, shareholders, suppliers and employees – or indeed the broader economy,” Henry said.
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Some points of concern about the proposed tax included the lack of an end date, the limited scope (it would affect only the five biggest banks in Australia) and the disadvantage it would put Australian banks at compared to their international peers.
“...It is a tax on growth because as lending and investment increases the cost of the Levy also rises,” Westpac’s statement read.
Banks have said they plan to consult with shareholders on the new tax, and the Commonwealth Bank recently lodged an official submission to Federal Treasury its concerns about the tax.