Australia's big banks say they cannot afford the $6.2bn budget levy

Big banks have warned they cannot absorb the cost of the $6.2bn tax on them proposed in Tuesday’s budget and have called for it to be extended to foreign banks. Submissions from the Commonwealth Bank of Australia and National Australia Bank, submitted by the Monday noon deadline, also call for the levy to be removed when the budget returns to surplus and a host of other measures to limit its scope. Despite the outcry from the Australian Bankers Association, the new tax has been welcomed by smaller banks and credit unions, including ME Bank and the Customer Owned Banking Association.

The submissions suggest the big banks are set to ignore Scott Morrison’s pleas not to pass on the cost of the levy, after he conceded on Sunday they would find a way to charge customers more.

CBA submitted that the “cost will be unfairly borne by families and businesses who are our customers and shareholders”.

“The realities of running a business, whether small or large, are that higher costs are either passed on to customers through reduced service levels or higher pricing, or to shareholders through lower returns. There is no middle option to absorb costs.”

CBA warned against the levy becoming an “ongoing tool for governments to fill budget gaps at the expense of the banking industry, or indeed other industries in the future”.

It said a future budget surplus should trigger immediate review and abolition of the levy, or that it should be set at zero at that time. That would “minimise this unfair penalty on our customers and shareholders”.

CBA complained the levy did not apply to overseas-owned multinational banks and “therefore favours them at the expense of Australia’s own banks”. 

Its submission warned that non-Australian banks such as ING, HSBC and Rabobank would be able to “compete more aggressively for deposits” without the additional cost of the levy.

NAB warned the levy was “poor policy” and constituted “a tax on every Australian who benefits from, and is part of, the banking industry” including its 10 million customers, 570,000 direct shareholders and 34,000 employees. 

“The levy cannot be absorbed; it will be borne by these people.”

NAB agreed with CBA that the levy represented “a clear disadvantage against global competitors in wholesale and institutional banking”.

Given that the stated purpose of the levy was budget repair, NAB said the Treasury should discuss “arrangements for the sunsetting of the legislation once the stated objectives have been met”, despite Morrison confirming on Wednesday the government intended the tax to be permanent.

The ABA chief executive, Anna Bligh, called for a full regulatory impact statement for the new tax, warning that “a poorly-designed tax could have consequences for the nation’s finances and for everyday Australians”.

The ABA submission argues the government has failed to follow best practice on industry consultation, echoing Bligh’s accusation that the government was moving with “indecent haste” in calling for submissions before legislation had been released.

“Further treasury analysis is imperative, including on the modelling of the economic impacts of the tax, and banks should be given at least four weeks to respond to the treasury analysis, the draft legislation and explanatory memorandum,” she said.

The chief executive of ME Bank, Jamie McPhee, told Guardian Australia the bank levy was a good move for a “more level playing field”, which smaller banks had called for since the financial system inquiry three years ago.

Big banks were required to hold less capital for housing lending and had a 10- to 20-basis point advantage in raising funds due to their “too big to fail” status, McPhee said. The Reserve Bank of Australia has estimated the value of that implicit guarantee to be worth $3.7bn to the big four banks.

“That’s an explicit benefit and the only reason they have that status is because they are underwritten by the taxpayer. The [big bank] levy is actually returning the benefit of what has been achieved to those who have created it, the taxpayer.”

McPhee said it was up to the big banks whether they passed on the levy, but if their customers felt the cost had been imposed on them, that might encourage them to change banks.

The Treasury estimates that ANZ, Westpac, NAB and CBA will each pay $300m to $400m each year under the levy, which applies only to them and Macquarie because they have entity liabilities of $100bn or more. 

On Thursday the ABA said treasury officials were unable to say which of their commercial activities would be captured.

The banks made a number of technical recommendations to limit the effect of the tax by excluding tier-two capital, non-funding liabilities including tax liabilities and employee entitlements, exchange settlement account balances, high quality liquid assets, inter-company transactions and repurchase agreements, and by applying the levy only to the the net derivative balance sheet.