Tag: Bank Tax

ANZ’s opening address – Senate Economics Legislation Committee on Major Bank Levy Bill

ANZ’s address makes three points. The levy should be temporary, should be applied to foreign banks, and the costs will be passed on in one way or another.

Good morning and thank you for the opportunity to appear today.

With me today are Rick Moscati, our Group Treasurer, and Jim Nemeth, our Head of Tax. While ANZ is disappointed by the bank levy, we accept that it will become law.

Our aim today is to work constructively to ensure that the legislation is as fair and efficient as possible.

We appreciate the changes made already to the treatment of derivatives and that the rate of the levy is reflected in the Act.

I have three points to make briefly today in relation to our submission.

Firstly, as one of the principal reasons for the levy is budget repair, we think that the levy should cease when the budget returns to surplus.

Secondly, we believe the levy should apply to major foreign banks operating in Australia and exclude the offshore branches of Australian banks. This would be consistent with principles of international taxation, avoid double taxing Australian banks and mean that all major banks in Australia, foreign or domestic, are treated equally. Without the levy applying to major foreign banks, Australian banks will be at a significant disadvantage in the institutional markets where foreign banks mainly compete.

Further, we borrow money in offshore branches to lend to offshore institutional customers. If the levy applies to our foreign branches, it makes us less competitive overseas. This will constrain Australian banks’ ability to develop offshore business and serve customers in the region.
Recent amendments to the UK levy are consistent with this. That levy applies to large foreign banks operating in the UK and is being amended to exclude UK banks’ offshore liabilities.

The reasons for this approach include ensuring UK banks are not hurt by operating offshore and to tax foreign and domestic banks equally. The same rationale applies to Australia.

My last point is that we are concerned about the combined impacts of increased bank regulation and the levy.

We believe there should be appropriate reviews of how these policies interact.

Speaking to international investors recently, they share these concerns, not just in relation to the banking sector, but also in relation to broader investment in Australia.

The points I’ve made concerning a levy sunset and reviewing its cumulative impact with other policies would help alleviate these concerns.

Before I close and to anticipate your questions, we have not decided how we will respond to the levy. In any event, there are legal limitations to what I can say today.

However, we cannot ‘absorb’ the levy. Based on ANZ’s 31 March Balance Sheet, we estimate that the annualized financial impact of the levy would have been $345 million before tax.

It is an additional cost that the shareholders, customers and employees of ANZ will bear.

Our options are to reduce what our owners receive, reduce our costs or charge higher prices.

As announced last year, ANZ has already reduced what our owners receive by cutting our dividend. We are also already focusing heavily on reducing absolute cost levels. We have reduced costs over the last year and announced that we are working on further reductions.

ANZ will continue to work constructively with you and your Parliamentary colleagues to ensure that the levy is as fair and efficient as possible.

A better alternative to levying the bank tax

From The Conversation.

In all the noise and fury surrounding the bank tax, a more effective alternative proposal to implementing it has apparently been forgotten. In 2015 South Australian Premier Jay Weatherill proposed that banking should be subject to the GST.

This idea had much sounder economic underpinnings than the current levy, would have raised much more revenue (maybe three to four times), and would have applied to all banks rather than just the big banks. Of course, that last feature would have united the banks in opposition, in contrast to the current divide and (hopefully) conquer approach of Treasurer Morrison.

Unlike other industries, the traditional business of bank deposit taking and lending is exempt from GST. This creates economic distortions and omits a large part of the economy from being taxed.

The omission of banking from the GST is a product of history, because applying it to the banks was seen as too complicated. The reason lies in the nature of the GST as a “value added” tax.

Essentially the 10% tax is added to the sales price of an output good or service, but the seller obtains a GST credit for the tax component of the price of input goods they have bought. The historical view was that it is difficult to identify what are banking sector inputs and outputs, and thus value added.

Is providing a deposit account an input (in making loans) or an output in its own right? And there is generally no explicit fee charged for the service of intermediation between depositors and borrowers, with bank costs and profits covered by the interest rate spread.

The argument that its too complicated is no longer a sufficient justification. At one level the aggregate “value added” by a bank is easy to estimate. It’s the sum of profits and wages. The size of the profits and wage bills of the banks by itself indicates the potential tax revenue foregone and potential economic distortions caused by favourable tax treatment of banking services.

At the product level, while banks receive input tax credits on purchased inputs they do not add a GST cost to the price of deposit or loan products and services. Introducing GST would mean that banks would need to add the tax on their value added to prices charged (directly or implicitly via changes to interest rates) but would be able to utilise the GST credits they currently get on purchased inputs.

The historical complication was determining how much of aggregate value added and various input costs to allocate to each product. How should the cost of bank premises or teller time be allocated between individual deposit and loan customers?
That is a difficult problem. But banking systems of activity based costing, product and divisional profitability have evolved to enable an application of the GST. It might be an imperfect application, but that is arguably a lot better than none at all.

Exempting traditional banking services from GST is a significant cost to tax revenue. But it also creates economic distortions.

One, at an aggregate level, is that banking services get a tax advantage over other forms of economic activity – perhaps helping to partially explain why the financial sector has grown as a share of total GDP.

Another distortion lies in effects on different types of customers. Yes, application of GST to banks would raise the cost of banking services to all customers – since it is unrealistic to expect that this tax, even though effectively levied on bank profits plus wages and salaries, would not be passed on.

But it would mean that business customers would get GST input tax credits on their purchases of banking services to offset against the GST bill on their sales. Households, as consumers would not get that benefit, reducing tax induced distortions to their use of banking services relative to alternative expenditures.

The detail of the GST (including federal – state revenue sharing implications) is a mystery to most people, so it’s easy for counter-arguments to be produced to obfuscate and obstruct the proposal to apply it to banking. But it has merit and warrants serious consideration.

It’s highly unlikely that Treasurer Morrison will want to deal with the fall-out from adding a bank GST impost on top of the “big bank tax”. But perhaps, placing a sunset clause on that and using the lead time to develop a coherent plan for applying GST to banks is worth considering.

Author: Kevin Davis, Research Director of Australian Centre for FInancial Studies and Professor of Finance at Melbourne and Monash Universities, Australian Centre for Financial Studies

Significant Questions Remain on Bank Tax – ABA

The legislation for the major bank levy introduced today shows the Federal Government’s original design had major flaws and significant questions remain on how this rushed legislation will affect the economy, the Australian Bankers’ Association said today.

“The Government has been forced to make concessions to the bank levy following the banks’ one and only opportunity to meet with Treasury on such a major Budget measure,” ABA Chief Executive Anna Bligh said.

“Banks welcome the concessions which would have had unintended consequences across the financial system, but despite these changes, major banks remain concerned about the Government’s poorly-designed tax grab,” she said.

The legislation, revealed to the public for the first time today, showed the levy will no longer apply to:

  • Derivative transactions, which banks use to minimise their risk.
  • Money the banks hold with the RBA.

Banks had argued for both of these changes.

“This is a tax on all Australians even with these changes. The Government’s own analysis released today acknowledges that the impact of this tax could hit “bank borrowers, lenders, shareholders or some combination of these groups”1,” Ms Bligh said.

“This levy will impact on investor confidence in Australia’s major banks and make it more expensive for banks to raise the money they need to lend to businesses and individuals,” she said.

“The major banks’ market value has already fallen by around $39 billion since the Budget.”

Despite these changes the Government still maintains that the levy will raise $6.2 billion over the four years of forward estimates in the Budget.

“Treasury has not provided sufficient modelling to explain their calculations in the Budget. At this stage, we are still uncertain just how much the levy will raise.

“There is no sunset clause which is unfair to those who will be impacted by the tax. One of the rationales for the levy is that it will contribute to budget repair,” Ms Bligh said.

“If that is the case then let’s be fair and remove the tax once the budget is back in the black.”

Treasury delays first bank levy payment

From Australian Broker.

Treasurer Scott Morrison has delayed the first payment of the controversial bank levy and argued that any added costs will be no excuse for the big lenders to alter mortgage or deposit rates.

In his second reading speech on the Major Bank Levy Bill in Parliament House, Morrison said the first levy calculation and instalment will be postponed by three months with the first payment now occurring on 21 March 2018.

“The government is working with the banks to ensure a smooth transition to the new regime. To assist major banks to begin to comply with the levy, the first levy calculation and installment will be delayed by three months – at no cost to revenue – to provide additional time for banks to make necessary systems changes,” he said.

This means that the banks will have to pay for both the September and December quarters for 2017 on the same day. The levy for the 2018 March quarter will be payable on 21 June while that for the June quarter will be payable on 21 September.

The levy does not give the banks an excuse to increase costs for customers, Morrison added.

“That is why the government has directed the ACCC to undertake an inquiry into residential mortgage pricing. The ACCC will be able to use its information-gathering powers to obtain and scrutinise documents from any bank affected by the levy and to report publicly on its findings.”

The Treasurer said he expected the banks to balance the needs of borrowers, savers, shareholders and the wider community following the introduction of the levy.

“The ACCC inquiry will illuminate how the banks respond to the introduction of the levy and give all Australians the information they need to get a better deal elsewhere from any of the more than 100 other banks, credit unions and building societies, as well as other non-bank competitors.”

However, CEO of the Australian Bankers’ Association (ABA) Anna Bligh has said that these costs will already be passed onto the public regardless.

“The government’s own figures and the government’s own documents can see that the impact of this tax is likely to fall on savers, borrowers, lenders and shareholders. It is a concession at last and an acknowledgement from the government that this is a tax on all Australians,” she told the media.

“We don’t have to wait for this tax to be introduced for it to have an impact on Australians right now. Since budget day, $39bn has been wiped off the market value of our five largest banks. And every Australian who has a superannuation account will see a loss of value.”

Commenting on the changes made by the Treasurer today, Bligh said the government “has been forced to make some concessions” with the banks as both parties attempt to understand the underlying complexity of the levy.

“Banks have been telling the government for three weeks that this is complex and they need to get it right,” she said.

In his speech to Parliament, Morrison also effectively said the levy would not be raised, keeping the level at the previously proposed 0.06% per annum for any eligible licensed entity liabilities at the big five banks.

The government will likely get more from the bank levy

From The Conversation.

In this year’s budget papers, Treasury estimated that the bank levy will collect about A$1.5 billion in each of the next four years for the government. But this is actually a conservative estimate.

Labor has argued there will be a A$2 billion dollar hole in the bank tax revenue. This is based on the disclosure to the ASX of four of the five affected banks, on what they will likely pay government.

But the banks’ numbers assume there won’t be change to any decisions in response to the bank levy. Research shows this is highly unlikely, as bank customers have worn the cost for bank taxes like this, imposed after the global financial crisis in the UK.

In fact, if the economy keeps growing as many have predicted, and banks grow too, then the amount of revenue the government collects from the levy may even be bigger than Treasury estimates.

What we know about the bank levy

When it comes to what revenue the government can get from the bank levy, both the taxable sum, and the tax rate applied, determine what gets collected.

The budget papers specify the taxable sum as including “items such as corporate bonds, commercial paper, certificates of deposit, and Tier 2 capital instruments” but not “Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme”. The bank levy will be an annualised rate of 0.06%, applicable for all licensed entity liabilities of at least A$100 billion from July 1, 2017. Small banks and foreign banks are exempt.

Although it is possible the bank levy would not be a deductible expense in calculating corporate income, precedent and statements by government indicate the levy will be deductible. Special taxes on the mining industry (including royalties and the petroleum resource rent tax), state payroll, land taxes, stamp duties and indirect taxes such as petroleum excise are all deductions in the calculation of taxable corporate income.

Errors in the assumptions about banks

Labor and banks also assume that the bank levy is a deduction in assessing corporate income. The preliminary data made public by four of the five affected banks indicates the gross revenue gain of the bank levy, less the reduction in corporate tax, will be less than the budget numbers.

That is, the net revenue reflects a 0.042% levy rather than the 0.06% rate. This also assumes shareholders will bear all of the net additional taxation.

But it also assumes the banks will not change any decisions. This is both a simplistic and an unlikely scenario.

In essence, the bank levy is a selective indirect tax on one of the inputs used by the large banks to provide financial services to their customers.

A more likely scenario is that the banks will seek to, and succeed in, passing forward most of the new indirect tax to their customers as a combination of higher interest rates and fees. From past experience, banks pass forward higher Reserve Bank of Australia (RBA) interest rates, just as they pass forward lower rates.

Given that the affected five banks account for over 80% of the market, together with the reluctance of most Australian business and household customers to switch banks, there is a high probability that most of the levy will be passed forward as higher bank interest rates and fees.

Should the banks pass forward most of the levy to their customers, the increase in bank revenue will match the increase of bank costs caused by the levy. That is, taxable corporate income will remain about the same. Then, the overall government revenue gain is given by the gross 0.06% bank levy.

The bank levy could even collect more

If the output and incomes of the five banks to pay the levy expand over the next four years, then we would expect additional revenue to be collected by government to increase over time. The budget papers, the RBA, international agencies and private sector economists all forecast economic growth. It’s unlikely that the big five banks would not also experience economic growth.

So the budget paper forecast that the bank levy revenue collection of about A$1.5 billion a year for each of the next four years, has to be on the conservative side.

The revenue estimates for the levy are forecasts or projections compiled in a world of uncertainty. So a lot is still up for debate, including not only the design of the levy but the future path of the economy in general and for the large banks in particular.

Details and assumptions underlying government estimates of the revenue from the bank levy are unclear. It would be an unusual precedent not to allow the levy to be a deduction in calculating corporate income tax, and so reducing the net revenue gain. But the implicit assumption of the bank released numbers of no decision changes by the banks is unrealistic.

If banks, as businesses in general, pass forward to customers much of an input tax, a large part of the first-round fall in corporate income, is offset by higher revenue. Government forward estimates of additional government tax revenue collected by the levy likely are on the conservative side.

Author: John Freebairn, Professor, Department of Economics, University of Melbourne

No big break for the non-majors

From Mortgage Professional Australia.

Although majors have been hit by bank levy, non-majors will struggle to take advantage. Brokers shouldn’t expect sharper rates from the non-majors despite the introduction of the recent bank levy.

Although the Federal Budget’s 0.06% levy on Australia’s major banks was welcomed by many as levelling the playing field, this week’s ratings downgrade by S&P represented a ‘backward step’ for competition, according to ME bank CEO Jamie McPhee.

S&P downgraded the credit ratings of 23 banks, including ME, making it more expensive for these banks to borrow and consequently lend as mortgages. The majors were not downgraded, which McPhee attributed to their implicit guarantee by the banks:

“The current environment does not provide for ‘competitive neutrality’, which is to the detriment of consumers. This situation will remain until both the gap in capital requirements is further reduced and the cost of funding advantage currently being enjoyed by the major banks due to their ‘too big to fail’ status is removed”.

Why non-majors may not lower rates

Even if the majors passed on the bank levy in mortgage rates they would still enjoy a 5-12bp advantage over the non-majors, according to Digital Finance Analytics principal Martin North.

“Everyone else – apart from the non-banks – have a significant competitive disadvantage” North told MPA “Whether the impost of a bank tax is a good way to deal with that structural competitive disadvantage, I have my doubts.” Like McPhee, North suggests the continued raising of capital requirements for majors – something currently being considered by APRA – would better improve competition.

Other considerations will deter the non-majors from lowering interest rates to compete, North claims: “if the big four reprice their mortgages I’m pretty sure the regionals will follow anyway because they need to do margin repair on their books also.”

The Business Council of Co-operatives and Mutuals has announced a marketing drive off the back of the bank levy, however, encouraging consumers to ‘#switchdontbitch’. According to Melina Morrison, CEO of the Council, “It is cheeky for the banks to cry poor. Switching banks is the best way for consumers to make it clear that they are not walking ATMs for the big banks.”

ANZ Accepts Bank Tax Will Be Imposed

David Gonski, ANZ Chairman wrote to its shareholders, and included comments on the bank tax, and and also addressed the question of the relationship between the community and the banks.

Normally I would write to update you on our financial performance at that time. However, with the recent announcement of a new tax covering five major Australian banks in the Australian Government’s Federal Budget, I felt there was a need to be in touch with you sooner.

It is not only important to share with you the key aspects of our performance in the first half of 2017, we feel it is important that you are aware of the likely impacts of the tax and how we are addressing the situation.

2017 FIRST HALF FINANCIAL PERFORMANCE

During the first half of 2017 ANZ made good progress with our strategic focus on creating a simpler, better capitalised and more balanced bank. Statutory Profit was $2.9 billion, up 6%, allowing us to distribute an Interim Dividend of 80 cents per share fully franked in line with the first half of 2016.

A highlight of ANZ’s performance in the first half was the progress we made in strengthening the bank and improving shareholder returns. ANZ’s Common Equity Tier 1 capital position rose to 10.1%, our strongest position in recent history. Our Return on Equity increased from 9.7% to 11.8%, the first material increase we have seen since 2010.

These are strong outcomes reflecting a significant reshaping of ANZ’s business over the past 18 months to adapt to the rapidly changing environment and deliver materially better outcomes, not only for shareholders but for our customers and the community.

In every area of the business we continued to work hard to improve the experience of our customers. We reduced interest rates on some credit cards, introduced new debit cards to improve accessibility for vision-impaired customers, and announced plans to improve security through the use of voice biometrics. To support small businesses, we launched new digital solutions such as ANZ BladePay and ANZ Be Trade Ready.

In Australia and New Zealand our aim is to be the best bank for home owners and people who want to start and run a business. Both Australia and New Zealand delivered a solid performance in the first half. We are growing prudently in home lending in Australia and remain number one for home loans across New Zealand concentrating on owner-occupiers,
and in the small business segment.

In Institutional Banking we continued to reshape the business to improve returns through the distinctive proposition we have supporting trade and capital flows to customers who value our network and capabilities in Australia, New Zealand and Asia. This saw Institutional Banking deliver positive results in Australia and Asia supported by strong productivity gains and improved capital efficiency.

We also made good progress in simplifying our business. We completed a strategic review of Wealth Australia and we are currently exploring strategic options for the business while ensuring that the distribution of quality Wealth products and services remains part of ANZ’s customer proposition. We also signed agreements to sell our 20% stake in Shanghai Rural Commercial Bank, the UDC Finance business in New Zealand, and ANZ’s Retail and Wealth businesses in six Asian countries.

IMPLICATIONS OF THE BANK TAX

In the 2017 Federal Budget, the Australian Government announced it would introduce a new tax from 1 July covering five major Australian banks. Based on the current draft legislation and ANZ’s 31 March 2017 balance sheet, we estimate that its annual financial impact would have been approximately $240 million after tax.

The net financial impact, including the Bank’s ability to maintain its current fully franked ordinary dividend, will be dependent upon business performance and decisions we make in response to the tax.

Clearly we are disappointed at the introduction of this new tax. However, given the support it has in Parliament, we accept that it will pass into law.

Our focus has been to work constructively with government to ensure the legislation associated with tax is as fair and efficient as possible in the circumstances. We believe:

  • The tax should have a sunset clause where it is extinguished when the Federal Budget is repaired, which is the principal stated reason for the tax.
  • The level of the tax should be set in the legislation so it cannot be increased in the future without the agreement of both Houses of Parliament.
  • Any future proposed adjustment should be referred to the Council of Financial Regulators for their public advice on how the tax and any proposed changes interact with other regulatory objectives.
  • The tax should apply equally to large foreign banks operating in Australia to ensure that it does not give foreign banks a competitive advantage over Australian banks in the area of global institutional lending.

BUILDING BRIDGES, RENEWING TRUST

To me, the bank tax is further evidence of the breakdown in the banking industry’s relationship with many in the Australian Parliament and the broader community. I want to assure you that ANZ has been working hard to ensure that community trust in banks reflects the crucial role we have in keeping our economy strong and secure. This includes our positive and constructive approach to recent Parliamentary inquiries and to dialogue over the introduction of this tax.

It is not in shareholders’ interests or the national interest that the relationship between banks and the community continues in this way. We clearly have much to do but our aim is to work even harder to help repair the relationship for the good of shareholders and of all Australians. We acknowledge that this will require us to think and act differently. However, ANZ believes that making this change is fundamental to creating value for shareholders, for customers and for the community now and in the future.

Our acknowledgement of the need to change and our actions will, I hope, be understood by the community as a genuine commitment to responsibly, serving our customers’ and communities’ needs.

ANZ has been an important contributor to Australia and New Zealand’s economic growth and prosperity for more than 180 years. While this is a challenging time, at ANZ we have a clear strategy, our business is performing consistently and we are committed to work even harder to help our customers succeed and to build stronger communities. On behalf of shareholders, I want to acknowledge and thank our 50,000 employees around the world for the contributions they make every day in the interests of so many customers in Australia and internationally.

ANZ is well positioned to continue delivering for shareholders and all our other stakeholders.

The bank levy is suddenly an even better idea

From The New Daily.

The planned $6.2 billion bank levy was a good idea on budget night, and two weeks later it looks like an even better one.

That’s because of a decision by ratings agency S&P Global to downgrade the outlook for Australian banks.

In its latest ‘banking industry country risk analysis’, S&P changed its assessment of Australia’s economic imbalances from ‘high risk’ to ‘very high risk’, due to “strong growth in private sector debt and residential property prices in the past four years”.

The move will cause an increase in the cost of longer-term funding for smaller banks and credit unions, but does not affect the big four banks or Macquarie Bank – the corporations in the frame to pay the bank levy.

For the smaller banks and credit unions, such as Teachers Mutual Bank, Police Bank, Credit Union Australia, Bank Australia and ME Bank, longer-term funding costs are expected to increase by 10 to 20 basis points.

One senior market economist told me on Tuesday that was a “fairly hefty hike”, which will manifest as either lower profits for those banks or higher interest rates charged to their customers.

A skewed market

The smaller banks and other ‘authorised deposit-taking institutions’ have long complained that the big-four banks have an uncompetitive advantage.

That’s because of the ‘four pillars’ policy, which Paul Keating set up in 1990s to keep at least some semblance of competition in the banking market, has left us with a handful of banks that are ‘too big to fail’.

The government is therefore in a position where it must bail out any of the majors during a crisis.

That means that when fund managers or other large investors buy bank bonds from the majors, they don’t demand as high a rate of return because there is effectively no risk.

Conversely, when they buy the bonds issued by the likes of Bendigo & Adelaide Bank, or Bank of Queensland, the small banks have to pay more for the privilege.

Banking writer and former RBA economist Chris Joye recently calculated the majors are saving about $5 billion a year thanks to the implicit guarantee offered by the government.

And that’s before you take into account the way negative gearing and the capital gains tax discount have acted to artificially expand their mortgage portfolios in recent years.

Ironically, the government-backed oligopoly is seen by some as a ‘free market’ not to be messed with.

One property adviser recently complained, for instance, that “I do feel like we’re living a communist society with the rules that are being imposed on a free market”.

Quite the opposite is true, in fact.

As long as government maintains the current settings, it’s the big banks that resemble the protected government-sponsored enterprises seen in communist China.

The national interest

It is true, as critics argue, that the money raised by the bank levy won’t come out of thin air.

The banks will either pass the cost onto borrowers or take a hit to profits, and therefore have to reduce shareholder dividends.

But there are two reasons why that argument runs against the interests of everyday Australians – even if they are shareholders or mortgage holders.

The first is that by protecting the big banks, the government gives the oligopoly its strong pricing power.

Their tight grip on the market means their profits constantly exceed reasonable returns on the capital they deploy – a fancy way of saying they cream off massive profits because they can.

Shareholders have been doing well for years at the expense of mortgage holders.

Secondly, if the big banks calmly pass on all the levy to borrowers, there will be an increased incentive for mortgage holders to seek a better deal from a smaller banks.

The bank levy is a way of returning some market power to the smaller players, to boost competition.

And as those smaller banks have just received yet another blow via the S&P downgrade, now is the perfect time to do it.

The real debate, if the politicians were brave enough to have it, is not whether the levy is needed – but whether it should be larger.

Net Bank Tax Will Yield Just $3.86 Billion

So the big four have released data on the impact of the proposed bank tax, which was estimated to give more than $6 billion over 4 years, based on a 6 basis charge on selected liabilities.  They say on an annual pre-tax basis they would pay around $1.38 billion, or $965m post tax (as the tax would be an allowable expense).

The net effect after tax (around 30% deduction) would yield just $3.86 billion (plus a smaller amount from Macquaire at current levels.

Its a moot point whether this post tax position was included in the budget papers or not.

 

NAB Estimates Bank Tax Impact

NAB also told their shareholders about the impact of the proposed bank tax.

As one of NAB’s valued shareholders, I feel it is important you hear from me directly about the major bank tax announced in the Federal Budget on 9 May and what it will mean for NAB.

The tax – $6.2 billion over four years – is poor public policy that will affect every Australian.

We are concerned the tax has been developed without sufficient consultation or consideration of the impact on bank customers, shareholders, suppliers and employees – or indeed the broader economy.

There remain many unanswered questions. But based on what the Government has announced to date, and applied to our business as it stands, the tax could cost NAB approximately $350 million annually, or $245 million post tax.

However the actual cost will not be known until the final legislation for the tax has been passed and we can fully assess its impact on NAB’s business.

NAB will continue to strongly object to this tax and will do so by engaging with you, the broader community and with the Government and Parliament.

We are encouraging a Senate committee to conduct an inquiry into the legislation to enact the tax, so Australians can have a deeper understanding of the process behind the tax and how it will work.

We have also called for the exposure draft legislation to be released for public consultation so the community can have its say. This is an important step for a reform of this scale and nature.

Given the tax is being enacted for the purposes of budget repair, we have encouraged, through our initial public response, the inclusion of an end date for the legislation once its stated objectives have been met.

The Government has said this tax can be simply “absorbed”. You know, I know and the Government knows that a tax cannot be “absorbed”. It must be passed on somewhere.

No decisions have been made on how we will seek to manage the cost of this new tax. While we must balance the interests of all of our stakeholders, the options available to us are limited.

We could reduce what we spend with our more than 1700 suppliers. Many of these are small businesses that have provided great support and service to our bank over many years. Reducing our spend on suppliers also affects our customers and shareholders.

We could increase the rates we charge borrowers or reduce the rates we pay savers.

We could invest less in new products, facilities and services for our 10 million customers.

We could invest less in our workforce; all 34,000 employees, most of whom live and work in the communities they serve across Australia.

Or we could allow this new tax to affect our profitability. This would impact our shareholders – the 570,000 people like you who own shares in the bank directly and the millions of Australians who own NAB shares through their superannuation fund.

We will continue to advocate for you, our shareholders. You invest your savings in NAB and together with all our stakeholders are what make our company what it is today.

The Board is interested in your views on this tax and how we can represent you. Please share any feedback or thoughts you might have by emailing Shareholder.Centre@nab.com.au

Thank you for your continued support.