Westpac says bank levy will cost $260m

Westpac says the bank levy introduced in the Federal Government will increase costs by $65 million after tax in the the

Australia's four biggest lenders on Monday launched a strongly worded attack on the government's new levy on big banks, estimating almost A$1 billion (US$745.00 million) in additional annual costs between them.

The Government forecast that the levy will raise $6.2 billion in revenue over four years by imposing a 0.06 per cent tax on certain bank liabilities.

It will apply to banks with liabilities of more than A$100 billion and won't impact either regional lenders or foreign banks operating in Australia.

Another concern within government is that some of the foreign banks are already subject to similar levies on their home country, and would be double taxed if hit with the bank tax in Australia.

"No company can simply "absorb" a new tax, so consideration is being given to how we will manage this significant impost on the bank".

"However the actual cost will not be known until the final legislation for the tax has been passed and we can fully assess its impact on NAB's business", the NAB chairman, Ken Henry, said in a note to shareholders. It's also worth noting that although the central bank is technically independent, it can not act as a lender of last resort unless the market has total faith in the government that underwrites it.

But it is unlikely to withdraw support for the law if the inquiry is not extended to the foreign banks.

He said the foreign bank operations in Australia were on a par with the smaller banks which were meant to benefit from the bank tax and it would be discriminatory to tax one and not the other.

Separately, Commonwealth Bank of Australia, the nation's biggest bank, said it expects the levy will cost it A$220 million after tax a year.

The government's levy is essentially a quid pro quo in exchange for the liquidity guarantee the Reserve Bank extends to Australia's big banks in order to ensure complete market and public confidence in them. But he also said that if the full impact were passed on to shareholders it would be equal to a dividend cut of 8?? a share.

Westpac also affirmed it may pass on the levy to its customers, shareholders, suppliers, staff "or some combination of all four". That translates to an annualized cost of AUD260 million.

Westpac shares are down around 12% this month.

Worldwide rivals would not be subject to the levy, although HSBC is subject to the equivalent United Kingdom scheme.


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