Westpac chairman Lindsay Maxsted
Taxpayers will be sharing part of the burden of the government’s bank levy, according to Westpac, which revealed its expected cost for that bank in a statement to the ASX this morning. Westpac is the first bank to release an estimate of the levy’s impact.
While Westpac said the gross impact could be around $370 million a year, it expects that the after-tax impact will be a net $260 million a year — equal to 8 cents a share in dividends, or 4.3% of its last full-year dividend of $1.88.
The details were contained in a letter from chairman Lindsay Maxsted to the bank’s more than 600,000 shareholders.
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“On an annualised basis, that represents a cost of around $370 million or around $260 million after tax. The exact cost will depend on the final form of the new legislation passed and the composition of Westpac’s liabilities. No company can simply ‘absorb’ a new tax, so consideration is being given to how we will manage this significant impost on the bank. We plan to consult with stakeholders, including shareholders, on the Levy. To dimension the impact of the Levy for our shareholders, the $260 million after tax cost is equivalent to around 8 cents per share (using the above estimates). Based on Westpac’s 2016 full year dividends of 188 cents per share, this represents 4.3% of dividends paid.”
But shareholders will also be subsidising the levy to the tune of around 30% (being the corporate tax rate). Based on Westpac’s numbers, about $1.86 billion of the whole levy will be a tax write-off. For the government the net income from the levy over the four years of the budget’s forward estimates won’t be $6.2 billion, but around $4.4 billion when the impact of the tax write-off is taken into account.
The deductibility of the levy hasn’t been discussed by the government so far, but clearly the banks expect that it will be a write-off. And that’s before, of course, any overall cuts to the company tax rate for big business.