Westpac: We Will Have To Pass On Aus Bank Levy
Westpac has said that Australia’s new bank levy will cost it around AUD370m (USD275.7m) a year, and warned that “no company can simply ‘absorb’ a new tax.”
In a letter to shareholders, Westpac chair Lindsay Maxsted described the tax as “bad public policy.” He said that the Government intends to levy the tax each year and that it expects the affected banks to “‘absorb the new tax – i.e., not to pass it on to customers.”
Maxsted refuted the plausibility of “absorbing” the levy, and stressed that “the impact of higher costs ultimately flows through to customers, shareholders, suppliers, staff, or some combination of all four.” He said that, based on the information it has received so far, the tax is likely to cost Westpac approximately AUD370m a year, with an after-tax impact of AUD260m a year.
“The actual cost of the tax will depend on the final legislation and our liabilities at the time the tax is determined,” he noted.
The six-basis point levy will apply to Australia’s five largest banks with domestic liabilities of more than AUD100bn.
Maxsted explained that, in considering how Westpac will respond to the levy, it will consider the long-term interests of the company and those of its stakeholders.
Outlining the possible impact on shareholders’ investments, he said: “if the first full year’s impact were borne just by Westpac’s shareholders, it would be equivalent to eight cents per share.”
“Based on Westpac’s dividends in full year 2016 of 188 cents per share, this would represent 4.3 percent of dividends paid.”
The Government intends to implement the levy from July 1. Maxsted said that the legislation should include a sunset clause to ensure that the tax stops at the end of the current budget cycle in 2021. Westpac would also like foreign banks to be included within the scope of the levy, to ensure that it is not competitively disadvantaged.
