The big four banks have a combined annual liability for the federal’s government’s new bank levy of $1.38 billion a year – as far as they can work out with the information they have been given.
The numbers show that the new tax will raise the amount estimated in the 2017 federal budget — $1.6 billion a year or $6.2 billion over four — but only as a headline figure.
The after tax number, because the levy is deemed a tax deductible cost of doing business, is $965 million. The government coffers will essentially take in $1.38 billion from the big four but give back $415 million.
That means that the fifth bank to be hit with the levy, Macquarie, will have to come up with a headline cost of around $220 million to hit the federal governments’s forecast.
Here are the estimates of what the bank levy will mean from each of the big four banks:
Commonwealth – $315 million, or $220 million after tax.
Westpac – $370 million, or $260 million after tax
NAB – $350 million, or $245 million after tax.
ANZ – $345 million, or $240 million after tax.
The banks don’t like the idea of the levy, a 6 basis point tax on liabilities, saying it was developed without consultation or consideration of the impact on bank customers, shareholders, suppliers, employees or even what it might do to the economy.
They say someone will have to pay for the levy, either shareholders or customers.
If it’s shareholders, the tax will strip 8 cents a share, or about 4.3% of dividends, based on Westpac’s 2016 full year dividends of 188 cents.
The other three banks haven’t provided an estimate like that one.
However, analysts say the bank levy will strip several percentage points on average from profits across the four banks.
Treasurer Scott Morrison says people can move their business to smaller banks if the big institutions start jacking up their prices because of the levy.
The tax is expected to be paid quarterly, with the first payment being the September quarter this year.
However, all the banks say there are still many unanswered questions as to how the tax will =be calculated and paid
None of the banks has decided how to manage the impact on profits.
The NAB, in a letter to shareholders by chairman Dr Ken Henry, a former head of the federal treasury, outlines the choices ahead:
- Reduce what the bank spends with suppliers.
- Increase interest rates charged to borrowers or reduce the rates paid to savers.
- Invest less in new products, facilities and services 10 million customers.
- Invest less in staff.
- Pay lower dividends to shareholders.
The exact costs to the banks will depend on the final form of legislation to be presented to parliament.
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