Westpac has worked out how much the bank levy will cost shareholders

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The federal budget’s new bank levy will cost Westpac about $370 million a year.

And that means 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.

However, Westpac hasn’t yet worked out how to apportion the costs between shareholders and customers, or whether it will cut staff costs or a combination of all three.

The banks say someone has to pay but 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.

Westpac, Australia’s second largest lender, today wrote to shareholders to explain what the 2017 federal budget initiative to raise $1.6 billion a year will mean.

“Given the limited detail available to us it is difficult to precisely calculate the Levy,” the banks writes.

“Nevertheless, given information received to date, we are able to provide preliminary estimates of the cost of the levy for Westpac.”

Based on Westpac balance sheet at the end of March, the 6 basis point levy would apply to about $615 billion of Westpac’s liabilities .

The levy will impact Westpac’s 2017 financial results for the year ended September 30 with a part year cost of $65 million after tax.

For a full year, the cost will be $370 million or $260 million after tax.

“The exact cost will depend on the final form of the new legislation passed and the composition of Westpac’s liabilities,” the bank says.

The bank reiterated its view that no company can simply absorb a new tax

“Consideration is being given to how we will manage this significant impost on the bank,” Westpac says.

“We plan to consult with stakeholders, including shareholders, on the levy.”

Westpac, and the other big four banks plus Macquarie, object to the levy on the grounds that it is an inefficient tax that targets just five companies.

“It places the major banks at a competitive disadvantage relative to international peers and it is a tax on growth because as lending and investment increases the cost of the levy also rises,” Westpac says.

“A further objection is that the levy currently has no end date, so it becomes a permanent tax impost on companies that are already amongst Australia’s largest taxpayers.”

Westpac earlier this month posted a 3% increase in first half cash profit to $4.02 billion on lower bad debt charges and a rise in fees and commissions.

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