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 update

Bank Levy update

June 19, 2017 11:46 AM | Print this page

As previously reported in Governance news on 5 June the two bills which will enact the bank levy have been introduced into the House of Representatives and are yet to pass the senate.

APRA has written to all Australian lenders, at the direction of Treasurer Scott Morrison, to ask for consultation on the process for data collection, which the government will use to calculate each bank’s tax liability. The due date for the first batch of liability data, which will be given to the Australian Taxation Office for revenue collection (if the legislation is enacted), will be in late January.

APRA has given the banks until 20 June to raise any concerns with its reporting standard.
The letter issued to lenders and published on the APRA website provides:
'Although the proposed legislation is still before Parliament, APRA has been asked by the Treasurer to begin the process of determining a reporting standard to facilitate the administration of the major bank levy. Determination of this reporting standard will be subject to Parliament passing the proposed legislation.
In response to the Treasurer’s request, APRA has today released for consultation a draft of Reporting Standard ARS 760.0 ATO collection for Major Bank Levy Act 2017 (ARS 760). This reporting standard is intended to collect information relevant to the major bank levy, using the definitions and methodology set out in the MBLA, for provision to the ATO.

ARS 760 will collect amounts specified in the proposed MBLA necessary to calculate the levy base. The proposed MBLA also specifies those amounts that should be valued based on the last day of the quarter, those which should use a quarterly average value and the basis of calculation for data to be provided, by requiring amounts to be worked out in accordance with accounting principles (within the meaning of the Income Tax Assessment Act 1997). These have been incorporated into the draft ARS 760 that is being released for consultation'.

The senate standing committee (economic legislation committee), chaired by Liberal Senator Jane Hume, conducted a one day hearing on 16 June as part of an inquiry into the bank levy. The Australian reports that representatives from each of the four major banks and Macquarie Group were expected to attend the hearing, as were the Australian Bankers Association, senior officials from the Treasury and executives from lower-tier and foreign banks.

Submissions to the economic legislation committee
On 13 June 2017, the Senate referred the provisions of the Major Bank Levy Bill 2017 and the Treasury Laws Amendment (Major Bank Levy) Bill 2017 to the Economics Legislation Committee for inquiry and report by Monday, 19 June 2017. Submissions closed at midday on 15 June 2017, by which time 20 submissions had been received. The hearing took place 16 June.

The Australian Banking Association (ABA) submission
As previously reported in Governance News on 5 June, the ABA has been critical of the Bank Levy. The submission to the committee states that the submission 'is voicing concerns about the effect of the levy on the five largest banks' on the following grounds:

  • Consultation for the bank levy has been rushed and inadequate. All ABA members have an interest in good public policy process and that involves consulting widely with the affected industry to avoid unintended consequences.
  • The imposition of a new levy on the five largest banks, with no sunset clause, leaves open the possibility that its base will be broadened and the rate lifted by future governments, thereby increasing the impact and possibly extending to other banks.
  • The levy cannot be “absorbed” as some suggest. It will have to be borne by savers, borrowers, shareholders, employees, suppliers or a combination of all, and the public is entitled to know this.
  • The imposition of a new levy on institutions that are profitable and successful sets a worrying precedent for other successful Australian businesses.
  • The ABA would draw the Committee’s attention to recent comments by the Secretary to the Treasury in his opening statement to Budget Estimates Hearings. These comments were made in reference to developments in Europe, but the ABA suggests are equally applicable to the Australian environment: 'Unconventional or inconsistent policy approaches, or indeed any rapid policy change or uncertainty, can affect the confidence of businesses and consumers and this, in turn, can undermine growth.'

Westpac submission
The Westpac submission, raises similar concerns to those raised by the ABA and suggests making the following amendments to the Bill:

  • the legislation should be changed to ensure that foreign banks are subject to the Levy in order to maintain international competitiveness and not advantage offshore bank investors;
  • the liability base attracting the levy should be narrowed to exclude products/transactions where the imposition of the Levy could have an adverse impact
  • on liquidity and pricing – e.g. funding of trade finance and repurchase agreements; the Bill should contain a sunset clause to align with the Government’s stated position that the Levy is for Budget repair; and there should be a mechanism to suspend the Levy if paying it would place an Authorised Deposit-taking Institution (ADI) under financial stress.

Business Council of Australia submission
The Business Council of Australia submission makes the following recommendations:

  • The levy should be introduced with a sunset clause so that it expires when the budget returns to surplus. It should not be used as an ongoing revenue raising measure.
  • There should be a legislated fully independent and transparent review of the levy after 3 years. The review should be brought forward in the event of an economic shock or major developments in the banking sector.

Other concerns
The AFR reports that the banks are also expected to point to the potential competitive disadvantages Australian banks might face when seeking funding and capital from international wholesale markets. The report quotes National Australia Bank CEO Gary Lennon as stating: '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'.

The Bill is reportedly likely to pass the senate next week
The Australian reports that the bank levy has tri-partisan support and the government is 'racing to pass the legislation'. If enacted, the banks will pay the first instalment of the tax in March next year.
The report notes that Labor is 'interested in' extending the levy to foreign banks operating in Australia; and adds that the Greens believe this 'may run foul of laws regarding the treatment of domestic and foreign entities'.

[Source: APRA consultation on ATO major bank levy data collection – June 2017: Letter to Industry and Draft reporting standard; The Australian 14/06/2017; Parliament of Australia Treasury Laws Amendment (Major Bank Levy Bill 2017);  Major Bank Levy Bill 2017; [registration required]; Submissions to the senate standing committee on economics: Major Bank Levy Bill 2017; The AFR 12/06/2017; The AFR 15/06/2017]

This post appears under the following topics;