Following announcements from the big four banks of the estimated costs of the new ‘big bank levy’, Deutsche Bank Australia has suggested that the tax rate may be too low to raise the $6.2 billion target and could be lifted.
In the recent budget, it was announced that government wished to bring in a new levy for the five biggest banks (those with assessed liabilities of $100 billion or more) that would be calculated quarterly as 0.015 per cent of licensed entity liabilities.
According to the Treasury, the levy would bring in $6.2 billion over the budget.
While details of the levy have not been finalised, the ‘big four’ banks have now released their estimates of the bank levy’s potential impact, which ranges from $220 million to $260 million (post-tax basis).
Westpac would pay the most under the levy, with their estimations coming in at $260 million a year (or $370 million pre-tax), while Commonwealth Bank would pay the least, with post-tax impact of $240 million (or $315 pre-tax).
However, NAB and ANZ would pay the largest proportion in terms of net profit after tax (NPAT), with the levy making an impact of 3.6 and 3.4 per cent of their NPAT for the financial year 2018.
Speaking after the release of these estimates, a research analyst at Deutsche Bank Australia said that these estimates “suggest the headwind from the levy may not be as large as initially thought”.
Analyst Andrew Triggs explained that the bank had assumed the levy would apply to group liabilities and would not be tax-deductible, however the bank’s estimates suggest that they would be.
As such, Mr Triggs said that Deutsche Bank’s initial estimates of NPAT being affected by between 4 and 6 per cent is higher than the bank’s current estimations.
He said: “Based on [our] forecasts, these estimates translate to an impact of ~2-4 per cent on FY18F cash earnings, which is less than our initial estimates of 4-6 per cent for the majors. Furthermore, there remains the prospect that the banks will be able to mitigate the impact via repricing of various portfolios.”
The analyst said that as well as repricing various portfolios, the banks may also look to offset the levy via loans and/or deposits but “ACCC monitoring will make this a little more difficult”.
‘Levy could be lifted’
Notably, Mr Triggs added that, although the bank estimates are preliminary and the exact formulation of the bank levy had yet to be finalised, they 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.”
He explained: “On an aggregate basis and allowing for a contribution from MQG, these estimates suggest that the total amount to be collected by the government (a little over $1 billion per annum after tax) would fall short of the ~$1.6 billion p.a. targeted, or $6.2 billion over four years.
“As such the levy may need to be lifted in order to achieve the government’s goals for budget repair.”
The major banks have voiced their opposition to the proposed levy, which is expected to come into force on 1 July, with the Australian Banking Association's chief executive Anna Bligh suggesting that the process around the levy has broken the rules and conventions of major taxation implementation, including no prior consultation, no exposure draft legislation for public comment, and an "extraordinarily" brief timetable before the "hastily designed" tax is presented to the Parliament.
“Disastrous unintended consequences could flow from this rush,” Ms Bligh said.