Treasury Receives Big Bank Feedback

NAB and ANZ have released their formal responses to Treasury relating to the liability tax.

NAB believes the levy is poor policy and, accordingly, does not support it. It says the levy is not just on banks, it is a tax on every Australian who benefits from, and is part of, the banking industry.  They then try to define the bounds and sensitivity of the calculation, with a view to reducing its impact.

NAB requests the production of a Regulatory Impact Statement (RIS) and a period of public consultation on the draft legislation. NAB recommends the levy be applied to the netted derivative balance sheet and collateral position. NAB recommends that the basis for the levy be adjusted for the impacts of the accounting gross ups which occur as a function of inter-company transactions. NAB recommends that the funding of high quality liquid assets be excluded from the levy calculation. NAB recommends that repurchase agreements be excluded from the calculation of the levy. NAB recommends the exclusion of non-funding liabilities, in particular, liabilities and provision for taxes and the levy. NAB recommends that, if included, only targeted anti-avoidance measures are contained in the
legislation. NAB also recommends that discretion be applied on any penalties for under payment.

It needs to be read in conjunction with their CEO’s earlier comments.

ANZ has more broadly tried to explain the potential impact of the tax on customers and shareholders. They also suggest a delay till September 2017 to allow sufficient time for design of the legislation and recommends the tax should be applied to the domestic liabilities of all banks operating in Australia with global liabilities above $100 billion. Finally, they argue the levy means it would be appropriate to re-think the need for any bank loss-absorption framework in Australia.

Westpac said last week:

“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.

This levy is a stealth tax on their life savings, the shares in their superannuation accounts, and it will make Australia’s banks less competitive.

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

“There is no ‘magic pudding’. The cost of any new tax is ultimately borne by shareholders, borrowers, depositors, and employees.

“The Australian banks are already the largest taxpayers, with Westpac the country’s second largest taxpayer. Westpac already pays over 30% of its profits in tax and this will now increase even further,” Mr Hartzer said.

“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%.

“It is disappointing that the Australian Government has implicitly favoured large foreign banks over Australian banks operating in their home market.

“In addition 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.”

Author: Martin North

Martin North is the Principal of Digital Finance Analytics

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