In a letter to shareholders, Westpac’s chairman Lindsay Maxsted, outlined the bank’s dissatisfaction with the proposed levy, announced in the recent budget, stating it is “bad public policy” and an “inefficient tax”.
Westpac went on to say that although government has stated that it expects the banks to ‘absorb’ the new tax, this would not be possible.
The letter reads: “No company can simply ‘absorb’ a new tax — the impact of higher costs ultimately flows through to customers, shareholders, suppliers, staff, or some combination of all four. As we consider how Westpac responds, our guiding principle, as always, will be: What is in the best long-term interest of the company, while balancing the interests of our 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.”
According to the bank, the levy would apply to approximately $615 billion of Westpac’s liabilities and result in a new cost for the second half of 2017 of approximately $65 million after tax.
The chairman stated that although “it is difficult to precisely quantify the impact of the tax” (due to the “limited detail available” and the fact that the legislation has not been finalised), it could cost Westpac approximately $370 million per annum.
The letter reads: “We estimate that this new tax will cost Westpac approximately $370 million per annum, with an after tax impact of $260 million per annum. The actual cost of the tax will depend on the final legislation and our liabilities at the time the tax is determined.”
While Westpac said no decision had been made on how the bank will respond to the levy, it told shareholders that to put the tax into “perspective”, if the first full year’s impact were borne just by Westpac’s shareholders, it would be equivalent to 8 cents per share.
Based on Westpac’s dividends in full year 2016 of 188 cents per share, this would represent 4.3 per cent of dividends paid.
The bank’s chairman went on to say that it was advocating for two amendments to the levy: that it should include foreign banks “to ensure Westpac is not competitively disadvantaged”; and that it should incorporate a “sunset” clause so the tax stops at the end of this current budget cycle (in 2021).
Mr Maxsted said that this would be consistent with the government’s announcement that the goal of the levy is to support “budget repair”.
The CEOs of the major bans have been sounding the alarm on the fact that the levy could result in rising funding costs and impact customer lending, and the Australian Bankers’ Association has been vocal in its opposition of the levy itself, and the way in which it has been handled.