Westpac has outlined the cost of the government’s proposed bank levy on its balance sheet and, more importantly for investors, its dividend.
In a letter sent to shareholders yesterday, Westpac said that "on the information received to date" the new bank 6 basis point levy would cost the bank $370 million per annum, which equates to an after tax cost of $260 million.
"The actual cost of the tax will depend on the final legislation and our liabilities at the time the tax is determined," said Westpac.
Westpac rejected the assertion by the government that the new levy would eventually be 'absorbed' by the major banks.
"No company can simply 'absorb' a new tax – the impact of higher costs ultimately flows through to customers, shareholders, suppliers, staff or some combination of all four," said the letter.
While Westpac said no decision had been made about how to respond to the levy, it sought to put the "new tax" in perspective for shareholders by warning them about the "potential impact on your investment".
"If the first full year's impact were borne just by Westpac's shareholders, it would be equivalent to 8 cents per share."
"Based on Westpac's dividends in full year 2016 of 188 cents per share, this would represent 4.3 per cent of dividends paid," said the letter.
Westpac said it is advocating for two amendments to the levy, which the government plans to implement by 1 July 2017.
First, the letter argued, the new levy should include foreign banks to "ensure Westpac is not competitively disadvantaged"; and second, a 'sunset' clause should be included "so the tax stops at the end of the current budget cycle in 2021".
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