Bank levy will cost Westpac $260m a year

Westpac announced Monday (22 May) that the government's bank levy will cost the institution $260m per year, making it the first of the five major banks to reveal the total implication of the tax.

The 0.06% bank levy (or six basis points), expected to be rolled out on 1 July, will apply to approximately $615bn of Westpac's liabilities, the bank said in a letter to shareholders. Based on estimates, it will cost the bank around $370m, or about $260m after tax, per year.

If the first full year's impact of the tax were borne entirely by Westpac's shareholders, it would be equivalent to eight cents per share, the bank said. Based on Westpac's dividends for 2016 of 188 cents per share, this would represent 4.3% of dividends paid. The total tally of the tax will depend on the details of the final legislation and the bank's liabilities at the time.

Westpac used the letter to further criticise the government's move, remarking on the difficulty of calculating the impact of the levy "given the limited detail available to us".

"This new tax is bad public policy— an inefficient tax— that targets just five companies that are already among the largest taxpayers in Australia (Westpac is Australia’s second largest taxpayer). Disappointingly, the tax does not apply to foreign banks, giving them a competitive advantage and favouring foreign shareholders over Australian ones," the letter said.

As such, Westpac is advocating for two amendments: that the new tax should include foreign banks and that the tax should stop in 2021 at the end of the current budget cycle.

While the government has assured the public that the tax will be shouldered by the big five and not customers, the major banks have rebuked this claim, saying it's impossible for any company to "absorb" such a tax. The levy is expected to generate $6.2bn in revenue over four years.

Westpac said the impact of higher costs will flow through to customers, shareholders, suppliers, staff, or some combination of all four.

Westpac said it is working out how it will manage the tax burden, considering what is best for the longterm interest of the company and its various stakeholders. "In this context, we will be pursuing our service strategy with vigour to grow the company and improve productivity to increase your returns over time," the note said.

"It is a tax on growth because as lending and investment increases the cost of the levy also rises. A further objection is that the levy currently has no end date, so it becomes a permanent tax impost."

Later in the day, Commonwealth Bank released its estimates, saying the levy would amount to approximately $315m per annum, $220m after tax, based on the group’s current financial position. The bank said it paid $3.6bn in tax in the 2016 financial year, making it Australia’s largest taxpayer.
 

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