Download copy of Perspectives on Cyber Risk 2017


Join the CHQA Members' Centre

In the CHQA Members' Centre, members can access CHQAnalysis (our in-depth analysis of current issues), News (weekly summaries of governance news), Board Shorts (succinct answers to directors' governance questions), a search facility extending over various governance categories, and information about our seminars and other events.

Apply for CHQA Membership here.

The CHQA Members' Centre is password protected and accessible only to members. There is no joining fee for eligible applicants.

Perspectives on Cyber Risk
play video
   
  
  
   
(Click to edit)

Bank Levy

Bank Levy

June 5, 2017 4:49 PM | Print this page

As announced in the 2017-2018 Federal Budget on 30 May, the two pieces of legislation which will enact the Bank Levy: The Major Bank Levy Bill 2017 (Major Bank Levy Bill) (which sets out how the amount of the levy will be determined) and the Treasury Laws Amendment (Major Bank Levy) Bill 2017 (which sets out reporting requirements, new anti-avoidance provisions and other amendments flowing to various Acts) were introduced and read a first and second time by Treasurer, Scott Morrison in the lower house.

Treasurer's Second Reading Speech
The treasurer's second reading speech reflects the reasons for the introduction of the levy provided in the explanatory memorandum and in the words of his closing statement: 'this Bill delivers on the Government’s promise to ensure that Australia’s largest banks are held accountable to the Australian community. It is evidence of our Government’s utmost commitment to long term budget sustainability and to ensuring that Australia’s largest banks make a fair contribution to the community. It builds on our program of prudential reforms, contributing to the resilience of our financial system and helping to ensure that banks can stand on their own two feet without recourse to taxpayers at times of financial stress. Finally, it enhances competition – supporting economic growth and delivering better outcomes for Australian consumers and businesses.'

Explanatory Memorandum for the Major Bank Levy Bill 2017; Treasury Laws Amendment (Major Bank Levy) Bill 2017

The Explanatory Memorandum provides that:

  • It will introduce a levy on authorised deposit taking institutions (ADIs) with total liabilities of greater than $100 billion.
  • The levy is imposed at a rate of 0.015% on certain liabilities of the ADI that are reported to the Australian Prudential Regulation Authority (APRA) on a quarterly basis under a reporting standard.
  • Schedule 1 to the Treasury Laws Amendment (Major Bank Levy) Bill 2017 (the Treasury Laws. Amendment Bill) amends the Australian Prudential Regulation Authority Act 1998 (APRA Act), the Financial Sector (Collection of Data) Act 2001 (Collection of Data Act), the Income Tax Assessment Act 1997 (ITAA 1997) and the Taxation Administration Act 1953 (TAA 1953) to specify certain administrative features relating to the major bank levy, including the requirement that the levy is payable to the Commissioner of Taxation (Commissioner) quarterly.
  • The Financial Impact of the Bill is stated as: 2016-2017: Nil; 2017-2018 $1.6m; 2018-2019 $1.5m; 2019-2020 $1.5m; 2020-21 $1.6m.

Context for the introduction of the levy

  • Contribute to budget repair: the levy will 'contribute to budget repair over the forward estimates period. The levy will also contribute to strengthening the structural position of the budget for the long term – providing greater fiscal capacity to accommodate shocks such as those seen in the global financial crisis'
  • 'Improve financial system resilience': the levy is 'similar to bank levies imposed in other advanced countries, recognising that large leveraged banks are a source of systemic risk in the financial system and the wider economy. Those risks were made evident in the global financial crisis'. The levy will complement prudential reforms being implemented by the government and APRA to improve financial system resilience'.
  • No material impact on the resilience of banking system: APRA has confirmed that the payment of the major bank levy will not have a material impact on the resilience of the banking system and that it does not harm its prudential policy objectives
  • Contribute to a 'more level playing field' for smaller banks and non-bank competitors: As the 'House of Representatives Standing Committee on Economies report on the four largest banks found the major banks size and market dominance affords them significant funding cost advantages and pricing power at the expense of their customers'

Impact on Business

  • The compliance cost impact is stated as 'low'. The compliance costs will be $1.5m per annum across affected banks over a 10 year period or $15m over a 10 year period
  • APRA will create a new reporting form to collect the data required to calculate the major bank levy. While this will impose 'some additional compliance costs, banks already collect much of the data required for existing APRA reporting forms and other purposes'
  • Any risks to financial market disruption arising from the levy 'have been minimised by its design'
  • The levy should 'have a negligible impact on the real economy'

Imposition of the levy

  • The Levy is imposed on the 'applicable liabilities amount'.
  • This is calculated as the difference between the total liabilities amount and the sum of certain other amounts which are exempt from the Levy, being:
    • the ADI's total Additional Tier 1 Capital at the end of the quarter;
    • the ADI’s total holdings of deposits protected by the Financial Claims Scheme at the end of the quarter;
    • an amount equal to the lesser of the derivative assets and derivative liabilities at the end of the quarter in relation to the ADI
    • the exchange settlement account balance held with the Reserve Bank of Australia for the quarter in relation to the ADI 
    • any amount of a kind determined by the Minister in a legislative instrument
    • The major bank levy first applies for the quarter starting on 1 July 2017 (which ends on 30 September 2107).

Australian Banking Association Press Release

In a Media Release issued by the Australian Banking Association (ABA) CEO, Anna Bligh expressed concerns about the design and impact of the levy:

  • 'Government's original design had major flaws': Banks welcome the 'concessions' made as a result of the consultation process shortly after the budget was announced. Namely that the levy will no longer apply to derivative transactions or money the banks hold with the RBA. However, 'significant questions remain on how this rushed legislation will affect the economy'.
  • That the impact of economy will be general: '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'
  • That the levy will negatively impact investor confidence: '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'.
  • That revenue projections provided by Treasury are 'uncertain': major bank's 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'. She added that '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'.
  • lack of 'sunset clause': '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. If that is the case then let's be fair and remove the tax once the budget is back in the black'.

APRA has not issued a media release or speech following the release of the Bill or the ABA media release. However, Chairman Wayne Byres is reported in the Australian saying that the tax posed no threat to the stability of the banks or the financial system and that lenders would remain 'quite profitable institutions' despite the levy. The same article goes on to say that lenders had a range of 'commercial decisions' at their disposal to absorb the cost of the levy, which included chasing new revenue, shifting their balance sheets, cutting dividends or taking longer to accrue capital in their buffers. Mr Byres said the levy would not have a 'material' effect on its plans to require the banks to hold more capital, and said the regulator was still on track to ¬unveil its new capital reserve ¬requirement rules in 'the next month or so'.

[Source: The Australian 31/05/2017; Second Reading Speech 30 May 2017; ABA Media Release; Major Bank Levy Bill 2017; Treasury Laws Amendment (Major Bank Levy) Bill 2017]

This post appears under the following topics;