Treasury assumed banks would pass on some of the $6.2 billion bank tax to their customers when it was costing the policy, despite the government urging lenders to “absorb” the levy.
We should be exempt: Bank executive
Find out why the head of the Macquarie Group Nicholas Moore says the bank shouldn’t be subjected to the Turnbull government’s bank levy.
As banks hit by the tax made a last-ditch plea for changes on Friday, a response to a question on notice from the Treasury revealed the department had assumed “some pass-through of the levy to customers, as evidenced by previous behaviour by the banks”.
The department had also assumed there could be “consequences for dividend payments” and therefore franking credits, though it cautioned it could not be “unequivocal” about who would ultimately pay the levy.
Asked about the assumption some of the cost could be passed on to customers, Treasury deputy secretary John Lonsdale stressed there was no “authoritative study” on the issue and such decisions were really for banks to make.
“They are ultimately a matter for banks. They are commercial decisions for banks,” he said.
The extent to which affected banks can offset the levy by changing interest rates or fees is one of the key questions over the bank tax, with Treasurer Scott Morrison bluntly telling banks last month they should “absorb” the levy because people “don’t like you very much”.
While banks insist they have not decided whether the levy will be passed on to customers, the cost must ultimately be paid by some combination of customers, shareholders and bank staff.
The comments came as Macquarie Group chief executive Nicholas Moore urged the government to exclude the investment bank from paying the levy, on the basis it was a relatively small competitor in domestic retail banking.
Larger rivals to Macquarie, meanwhile, acknowledged on Friday the tax was not a threat to financial stability, but said it would give a leg-up to foreign lenders in some markets.
Mr Moore, who had not previously commented publicly on the levy, was the only chief executive of a bank affected by the levy to attend the Senate committee hearing.
‘Not a major bank’
Mr Moore told the inquiry that banking made up about half the profits of the broader Macquarie Group, which also has a large funds management business. Macquarie Bank – the entity that is subject to the tax – made about two-thirds of its banking profits outside Australia, mainly from big institutional banking customers.
The levy was set to raise about $50 million after tax from Macquarie, he said, and would harm its ability to compete.
“Macquarie Bank has less than 2 per cent market share in the domestic mortgage market, less than 2.5 per cent in deposits, less than 2 per cent of Australian lending and advances, and less than 1.5 per cent of the credit card market,” he said.
“Macquarie Bank is therefore not a major bank as normally understood and therefore we think it should not be subject to the levy.”
The bank tax is a 0.06 percentage point charge on banks’ liabilities, applying to Commonwealth Bank, National Australia Bank, Westpac, ANZ Bank and Macquarie Group.
‘No current plans’ for Singapore move
Bendigo and Adelaide Bank chief Mike Hirst dismissed Macquarie’s argument it should be exempt from the tax, saying the bank received support from the government in other ways, including through a credit rating that was higher than otherwise.
While the government has highlighted the high returns made by the major banks, Macquarie Bank’s return on equity in the past five years had been 10 per cent, compared with about 15 per cent for the big four.
Mr Moore was also asked about reports the bank would consider moving to Singapore to escape the tax.
“We’ve got no current plans to relocate to Singapore or anywhere else,” he said, but also said it was always looking at the costs of operating in its various locations.