NAB CFO slams '40-hour' tax
Gary Lennon, National Australia Bank's chief financial officer, outlined the lender's four key issues with the government's Major Bank Levy Bill 2017 to the Senate Economics Legislation Committee on Friday.
He acknowledged that, while limited, the Senate Inquiry is an important process and one that NAB Chairman Ken Henry has advocated for – to ensure transparency and a greater understanding of the consequences of this tax.
"Historically, we’ve had constructive engagement on significant policy reform which has allowed everybody to fully understand the impact on bank customers, our business and the economy," he said.
"As Treasury Secretary John Fraser told this Committee just last month: 'any rapid policy change or uncertainty can affect the confidence of businesses and consumers and this in turn can undermine growth'. The major bank tax is rapid policy change and has created real uncertainty."
There are four key points that are central to NAB's concerns:
"Firstly, the lack of consultation and rushed process has contributed to the development of poor tax policy that will affect every Australian. While the UK bank tax was introduced under vastly different circumstances, consultation with the industry there extended for three months," said Lennon.
"In contrast, the major Australian banks had about 40 hours to provide submissions based on the draft legislation. As a result, many questions remain. The impact on the economy is still not fully known and there will be unintended consequences that will need to be addressed."
Secondly, Lennon said it had been repeatedly stated that the tax can be simply 'absorbed' by the banks. No cost, such as a tax, can be absorbed by any business – it must be passed on somewhere, he explained.
"Based on what we know to date and applied to NAB’s business as it stands, we estimate the cost of the bank tax on NAB would be around $350 million annually pre tax, or $245 million post tax," he added.
"No decisions have been made on how NAB will manage this additional cost. But the cost will be borne by one or a combination of these groups: our customers – borrowers and savers – our shareholders, our suppliers or our employees."
Purpose and impact
Thirdly, Lennon claimed the "inefficient design of this tax" placed the major Australian banks at a competitive disadvantage in wholesale markets that are critical to a well-functioning economy.
"In these markets the Australian banks compete against large and profitable global institutions that are not impacted by the tax – because their domestic liabilities do not exceed the tax’s $100 billion threshold," he said.
"And lastly, we need to be clear about the purpose and impact of the tax to ensure confidence in the Australian banking sector. Offshore investors have voiced their concerns about the tax and what it says about relations between the Australian banks and the Government.
"This is due to the surprise nature of the intervention and the 'shock' it created – coupled with the lack of a clear explanation and apparent conflict with previous regulatory guidance."
Lennon said NAB - and indeed the other major banks - accepted that the tax would be implemented but urged Senators to consider the following three points:
- A sunset clause so that when the Budget returns to surplus the tax is removed;
- To widen the tax to include international banks operating in Australia; and
- Commit to a review of the tax within 18 months of implementation to fully assess its impact and any potential unintended consequences.