Australia’s big four banks and their shareholders will recover very little of the new major bank levy from the proposed cut in company tax, a Fairfax Media analysis has found.
In fact, the proposed company tax cut and the major bank levy would leave banks more highly taxed than they were before the 2017 budget.
The levy, which came into force in the middle of last year, is expected to raise $1.6 billion a year from each of the big four banks and Macquarie Bank.
After adjusting for one-off restructuring costs incurred by the National Australia Bank, the most recent annual profits of the big four - ANZ, Commonwealth, NAB and Westpac - amount to $43.7 billion.
They paid $13.168 billion in tax, an effective rate of 30 per cent.
The tax cut before the Senate, from 30 per cent to 25 per cent, would cut the big four’s tax bill by $2.2 billion. But most of their shares are held by Australians eligible for dividend imputation, meaning that up to three-quarters of the revenue lost as a result of the cut would be clawed back in higher tax collections from Australian shareholders who received lower dividend imputation cheques.
The net cost to revenue is likely to be as little as $570 million per year at current profit levels, only around one-third of the extra $1.6 billion the big four and Macquarie will pay in the major bank levy.
The findings accord with a claim made in parliament last week by Treasurer Scott Morrison that by the time the major banks received the full benefit of the proposed cut in the company tax rate to 25 per cent in 2026, they will have paid an extra $16 billion to the government in the bank levy.
Other tax measures under consideration by the government that would help offset the cost of the company tax cuts and gain favour with crossbench senators include an increase in the petroleum resource rent tax and a new tax on e-commerce giants such as Google, Facebook and Uber. The budget papers provide for $3 billion in “decisions taken but not yet announced”.
The Australian Bankers Association declined to comment on whether the major banks would pay more in the levy than they would gain from the proposed cut in the company tax rate, referring questions to the Business Council.
A spokesman for Business Council chief executive Jennifer Westacott pointed to comments she she made this month where she said there was no case for exempting or 'carving out' or banks from the tax cut.
"They are paying a levy of $1.6 billion a year. Are we seriously going to punish the shareholders, the mums and dads?" she asked. "Are we seriously going to punish everyone in the banking system, the regional bank manager who's been helping out a local community for years?"
In parliament on Monday, Mr Morrison again refused to quantity the budget cost of the 10-year program of company tax cuts and the year-by-year cost of his three-stage program of personal income tax cuts.
In a Senate estimates hearing on Wednesday, officials from the department of finance are expected to refer to the Treasury questions about the cost of both sets of tax cuts. The Treasury will appear before the committee next Tuesday.
Labor Treasury spokesman Jim Chalmers said his party would try to split the personal income tax cut bill, supporting only the first wave of tax cuts due to start in July.
He held open the possibility of supporting the second of the three waves of tax cuts set down for 2024.
“We have made our view abundantly clear on the first part of it for low- and middle-income earners; we've said we're not wild about the third stage, which is two elections away, but we have got more discussions to have on that intermediate stage,” he said.
In The Age and Sydney Morning Herald