Second Aussie state open to levying bank tax

SYDNEY • A second Australian state said yesterday it was open to charging a bank tax, raising fears that the federal government has opened a Pandora's box by slapping a A$6.2 billion (S$6.5 billion) levy on major lenders in the Budget released last month.

A day after South Australia announced a A$370 million tax on five big lenders, Western Australia said the option was "attractive", and analysts warned investors to brace themselves for more tax hikes.

"I'm not going to pretend for a moment that it is not an attractive option... I remain open to it," Mr Ben Wyatt, treasurer of resources-rich Western Australia, told the Australian Broadcasting Corp.

While a state bank tax was not being considered currently, Western Australia was watching how it would go in South Australia, he said.

The federal and South Australian taxes will apply to the so-called "big four" - Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia, National Australia Bank and Westpac Banking Corp - plus top investment bank Macquarie Group.

Shares of ANZ, Commonwealth Bank, National Australia Bank and Macquarie fell about 1 per cent yesterday, in a sluggish market overall, while Westpac shares were flat.

"Pandora's box is officially open," UBS said in a research note. "As suspected, the recent announcement of the federal bank levy has already led to higher taxes on the banks."

Morgan Stanley said in a note to clients: "The threat to bank profitability from governments is emerging faster than expected."

Mr Mark Nathan, a partner at Arnhem Investment Management, which owns bank shares, told Reuters that the federal government under Prime Minister Malcolm Turnbull, a former investment banker, had "opened the door".

"But I don't think anybody was expecting anybody else to run through that door," said Mr Nathan.

South Australia's move puts more pressure on Mr Turnbull, who announced the federal bank levy last month following only brief industry consultations.

That move was condemned by the industry as a tax grab, but it had broad popular support. Anti-bank sentiment has been running hot following a series of misconduct scandals and years of record profits.

Still reeling from the federal levy, the Australian Bankers Association (ABA) accused South Australia of declaring war on businesses that are the country's most profitable.

ABA chief economist Tony Pearson urged other states in Australia to"think carefully about the implications for business confidence and investment in their own states".

REUTERS

A version of this article appeared in the print edition of The Straits Times on June 24, 2017, with the headline 'Second Aussie state open to levying bank tax'. Print Edition | Subscribe