Macquarie Group chief Nicholas Moore wants Macquarie Bank to be exempt from the major bank levy and has urged Canberra to follow the British government's recent decision to limit the bank levy to the portion of bank liabilities that funds local operations.
”Obviously the UK has had a bank levy for a while - and it was introduced for a different purpose - but it has morphed and in the future will not extend to international transactions,” Moore said at Friday’s Senate inquiry into the $6.2 billion major bank tax.
Moore tried hard to get across his view that Macquarie Bank's local operations make up a very small part of the Group's overall earnings, reasoning that it should therefore not have to pay the tax. Moreover, he expressed concern that the levy's impact on the sector is not fully understood, giving rise to unintended consequences.
"Macquarie Bank holds less than 2 per cent of the national mortgage market, less than 2.5 per cent in deposits and less than 1.5 per cent of the credit card market. We would like to express our surprise at our inclusion in the bank levy given our size," he said.
'Not a major bank'
The head of Australia’s biggest investment bank said Macquarie would take a $50 million after-tax earnings hit. On a pretax basis, the levy would cost the bank between $65 million and $70 million.
Moore emphasised that half of Macquarie Group's $2.2 billion earnings ($1.1 billion) is derived from Macquarie Bank and only a third of the banking business is based in Australia.
“Given that one-third of $1.1 billion is almost $400 million, a $50 million impact is significant in terms of the business. And that’s why we are here today,” explained Moore, the only major bank chief executive who bothered to turn up to Friday’s public hearing.
Based on the most recent financial accounts, the levy is estimated to be approximately 11 per cent of Macquarie Bank’s Australian earnings and approximately 4 per cent of its global earnings.
Expressed another way, this represents a potential increase in the lender's effective tax rate from 34 per cent to 41 per cent “well above the company rate of 30 per cent”.
“Macquarie Bank is therefore not a major bank as normally understood and therefore we think it should not be subject to the levy," insisted Moore.
Level of competition
Moore argued that the levy is designed to increase the level of competition within the banking sector, but said imposing the levy on Macquarie Bank would harm its competitiveness.
“Our business operates in highly competitive domestic and global markets and the levy will increase the cost of the products that we offer and make us less competitive," he said.
“Macquarie is a 'price taker' in the retail market, if our costs go up its just means we are less competitive in terms of ability to provide financial services in both the retail and the wholesale spaces.
“Our ability to compete rests with our ability to provide products at the lowest possible costs and the bank levy will increase costs and effectively act as a tax on exports.”
Moore also pushed the line that Macquarie is a significant exporter of Australian financial services, adding that the bank’s last result showed that the firm earned revenues of more than $10 billion globally of which an estimated $4 billion was returned to Australia through the payment of taxes, employee salaries, payment to suppliers and dividends to shareholders.
"Our ability to compete rests with our ability to provide products at the lowest possible costs and the bank levy will increase costs and effectively act as a tax on exports," he said.