The new bank levy announced in the 2017 federal budget will drain fewer dollars from the profits of the Commonwealth Bank, Australia’s largest, than the other three big banks.
The big four — Commonwealth, Westpac, NAB and ANZ — have run preliminary numbers over what the levy will mean for them, showing them paying a combined $1.38 billion a year.
However, that number reduces to $965 million because the levy is deemed a tax deductible cost of doing business.
“These estimates suggest the headwind from the levy may not be as large as initially thought,” says Deutsche Bank in a note to clients.
“Our initial estimates, published on budget night, had assumed that the levy would apply to group liabilities and would not be tax-deductible.
“The banks have clarified that the levy will be tax-deductible, but little detail was provided on the definition of the impacted liability base.”
Deutsche Bank now estimates a 2% to 4% cut on cash earnings in 2018, far lower than initial estimates of 4% to 6%.
Based on the banks’ own calculations, Deutsche Bank sees the least impact on the Commonwealth Bank’s results next financial year, as this chart shows:
“They (the bank estimates) also suggest that the aggregate amount to be collected by the government is likely to fall short of the $6.2 billion targeted in the budget over the four-year period, hence we see a risk that the 6 basis point levy could be lifted,” write analysts Andrew Triggs and Anthony Hoo.
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