Australian banks face ‘Pandora’s box’ of taxes after state hike

A day after South Australia state infuriated the banking sector by announcing a A$370 million tax on five big lenders, Western Australia said the option was "attractive" and analysts warned investors to brace for more tax hikes

By: Reuters | Sydney | Published:June 23, 2017 11:10 am
austrailia banks, australia taxes, australia news, business news, australia economy, latest news, indian express Australia’s Prime Minister Malcolm Turnbull gives the keynote address at the 16th IISS Shangri-La Dialogue in Singapore June 2, 2017. REUTERS/Edgar Su

A second Australian state on Friday said it was open to charging its own bank tax, raising fears the federal government has opened a “Pandora’s box” by slapping its own A$6.2 billion ($4.7 billion) l’evy on major lenders in its May budget.

A day after South Australia state infuriated the banking sector by announcing a A$370 million tax on five big lenders, Western Australia said the option was “attractive” and analysts warned investors to brace for more tax hikes.

“I’m not going to pretend for a moment that it is not an attractive option … I remain open to it,” Ben Wyatt, treasurer of resources-rich Western Australia, told the Australian Broadcasting Corp.

While a state bank tax was not currently being considered, Western Australia was watching how it went in South Australia, he said.

The federal and South Australian taxes will apply to the so-called “big four” banks – Australia and New Zealand Banking Group Ltd, Commonwealth Bank of Australia, National Australia Bank Ltd and Westpac Banking Corp , plus top investment bank Macquarie Group Ltd.

Shares of ANZ, Commonwealth Bank, National Australia Bank and Macquarie fell about 1 percent on Friday, in a flat overall market, while Westpac was also flat.

“Pandora’s Box is officially open,” UBS said in a research note. “As suspected, the recent announcement of the Federal Bank Levy has already led to higher taxes on the banks.”

Morgan Stanley said in a note to clients: “The threat to bank profitability from governments is emerging faster than expected.”

Mark Nathan, a partner at Arnhem Investment Management, which owns bank shares, told Reuters the federal government under former investment banker Prime Minister Malcolm Turnbull had “opened the door”.

“But I don’t think anybody was expecting anybody else to run through that door,” he said.

BANK-LASH

South Australia’s move puts more pressure on Turnbull after he announced the federal government’s bank levy with only brief industry consultation in May.

That move was condemned by the industry as a tax grab but it had broad popular support, with anti-bank sentiment running hot following a series of misconduct scandals and years of record profits.

Still reeling from the federal levy, the Australian Bankers Association (ABA) accused South Australia of declaring war on the country’s most profitable businesses.

ABA Chief Economist Tony Pearson urged other states to “think carefully about the implications for business confidence and investment in their own states”.

Turnbull criticised South Australia’s move, but his ability to push back against the state on pro-business grounds was limited by his own bank levy being fresh in people’s minds.

“When a state imposes higher business taxes within its own jurisdiction, is that going to drive investment, support, jobs within that state or is it in fact going to make it less competitive?” he told reporters.

Turnbull’s government has said its 0.06 percent tax is low by global standards, with Germany charging the same amount for similar-sized lenders and Britain charging 0.09 percent.

South Australia Premier Jay Weatherill, of the centre-left Labor Party, said banks were “not paying their fair share of tax” and the state’s levy was “fair and proper”.

The governments of the three biggest states, New South Wales, Victoria and Queensland, said they had no plans for a bank tax.

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