SYDNEY: Australia’s five biggest banks on Friday agreed a surprise $4.6 billion tax can be absorbed without damaging the stability of the country’s financial system or pushing lenders to move overseas, but have asked that foreign rivals face the same levy. Banks have criticized the tax as unfair since its unveiling last month, but executives on Friday told lawmakers they agreed with the Australian Prudential Regulation Authority’s assessment that it would not threaten the financial system.
The lenders also pressed for legislation to be amended to include foreign banks, such as HSBC Holdings PLC (HSBA.L) and Citigroup Inc (C.N), to help them stay competitive in low-profit margin markets such as trade finance and bond trading. “All we ask is that we be put into the same position as the foreign banks and that the levy be applied to them given the advantage their scale gives on a global basis and here in Australia,” Commonwealth Bank of Australia (CBA.AX) General Counsel Anna Lenahan told a senate committee.
The tax on bank liabilities including corporate bonds, commercial paper and certificates of deposit is forecast to raise $4.6 billion in its first four years to help Australia return to a budget surplus by 2021. But the tax, which is not yet in effect, lacks an expiration date sought by the banks. The tax, which has bipartisan backing, applies to banks with more than A$100 billion ($76 billion) of relevant liabilities in Australia, capturing the country’s five largest domestic banks by assets. Many international banks operating in Australia fall short of that threshold locally, though they exceed it globally. But Australia and New Zealand Banking Group Ltd (ANZ.AX) told the committee the big five Australian banks’ overseas branches would also be taxed under the legislation.
National Australia Bank Ltd (NAB.AX) Chief Financial Officer Gary Lennon said he doubted lawmakers’ intent was to put Australian banks at a disadvantage to foreign rivals at home or anywhere else. “It is possible that it will change the profitability of some of our businesses,” he said of the levy. “Once you change the profitability we might be deploying less capital to those businesses or exiting that business.” Macquarie Group Ltd (MQG.AX) Chief Executive Nicholas Moore said the tax would inevitably make the bank less competitive but that there were no plans to move the firm’s head office offshore as a result.
