Macquarie Bank is asking the government to exclude it from paying the bank levy

Chairman of Macquarie Group Ltd David Clarke (L) and chief executive Nicholas Moore (R).
Photo: William West/AFP/Getty Images

Macquarie Group chief executive Nicholas Moore has urged the government to exclude the investment bank from paying the bank levy, on the basis it is a relatively small competitor in domestic retail banking.

While the big four lenders are resigned to paying the $6.2 billion bank levy, Mr Moore on Friday pushed the case that traditional banking made up a much smaller part of Macquarie’s earnings, so it should not have to pay the tax.

The levy would harm its ability to compete, he said, despite promoting competition being one objective of the levy.

Mr Moore, the only chief executive of a bank affected by the levy to attend the Senate hearing on Friday, also said the bank had “no current plans” to relocate operations to Singapore, a possibility that has been flagged in the media, but did not entirely rule out such a move.

Mr Moore told the hastily convened Senate inquiry that banking made up about half the profits of the broader Macquarie Group, which also has a large funds management business.

Macquarie Bank – the entity that is subject to the tax – made about two-thirds of its banking profits outside Australia, mainly from big institutional banking customers.

“The major bank levy will increase the cost of the products that we offer and make us less competitive,” Mr Moore said

“One of the stated objectives of the major bank levy is to provide a more level playing field for smaller banks and non-bank competitors.

“Macquarie Bank has less than 2 per cent market share in the domestic mortgage market, less than 2.5 per cent in deposits, less than 2 per cent of Australian lending and advances, and less than 1.5 per cent of the credit card market.

“Macquarie Bank is therefore not a major bank as normally understood and therefore we think it should not be subject to the levy.”

The bank tax is a 0.06 percentage point charge on banks’ liabilities, applying to Commonwealth Bank, National Australia Bank, Westpac, ANZ Bank and Macquarie Group.

While the government has highlighted the high returns made by the major banks, Macquarie Bank’s return on equity in the past five years had been 10 per cent, compared with about 15 per cent for the big four.

Macquarie was the eighth largest mortgage provider, and a “price taker” in the market, he said. Finance chief Patrick Upfold said the bank tax would cost the bank $65 million to $70 million. This is a relatively small share of Macquarie Group’s overall profits, but the bank argues it is a “disproportionate” share of its Australian banking earnings.

Mr Moore was also asked about reports the bank would consider moving to Singapore to escape the tax.

“We’ve got no current plans to relocate to Singapore or anywhere else,” he said, but also said it was always looking at the costs of operating in its various locations.

Commonwealth Bank executives told the inquiry they accepted the legislation would go ahead, but pushed for amendments to introduce a sunset clause so that it was removed once the budget was in surplus. CBA also argued for the levy to include foreign banks, and for a future review of the tax by the Productivity Commission.

CBA treasurer Paolo Tonucci conceded the levy would not threaten financial stability, but argued the policy was not necessarily “aligned” with the banking regulator’s objectives of strengthening the banking system.

“We would agree with the chairman of APRA that it’s not a threat to financial stability,” he said.

Westpac chief financial officer Peter King said the tax “codified the notion that it’s OK to tax a small number of companies to fill a budget gap – just because they can ‘afford it’.”

“This creates investment uncertainty and we’ve already seen international investors expressing concern at this change in tax policy – and some have already reduced investment weighting in Australia.”

He said that in the last week, an institutional investor had moved to “underweight” its holdings in the bank – cutting back their exposure – because of “policy uncertainty” created by the banking tax.

This article first appeared on the Sydney Morning Herald’s Business Day. See the original article here.