Bank woes punch a $1.8bn hole in Canberra’s tax take

The political pile-on of the big four banks over mortgages may have punched a $1.8bn hole in Canberra’s tax take for the year.

The political pile-on of the big four banks over mortgages may have had an unintended consequence: it has helped punch a $1.8bn hole in Canberra’s tax take for the year.

As National Australia Bank signed off on a 14 per cent drop in full-year profit on Wednesday, the results highlighted to investors the banking sector’s worst set of annual bank profits since the global financial crisis.

Across the big four the numbers were ordinary — headlined by a combined $2.3bn drop in profit for the 2019 financial year.

All up, the big four banks posted a combined annual cash profit of $26.9bn, down 7.8 per cent on 2018, as they faced off against the backlash from the Hayne royal commission, alongside sluggish growth, low rates and intense competition from smaller lenders.

Cash earnings are now back at 2012 levels, while return on equity, at 11 per cent, has dropped to a level not seen since the 1990s.

The profit pain will mean a hit for the government coffers: the major banks are the biggest corporate taxpayers in the country, accounting for about 25 per cent of all corporate tax paid in Australia.

For the 2019 year, the banks’ combined tax expense fell to $11bn, down from $12.8bn in 2018. Westpac’s tax owed tumbled 19 per cent to $2.95bn, while NAB’s dropped 12.3 per cent to $2.1bn. CBA’s fell 12 per cent to $3.4bn and ANZ’s edged down 3 per cent to $2.67bn. Alongside the lower profits, three of the big four banks paid lower tax rates for the year. CBA, NAB and ANZ paid tax rates of between 28 and 29 per cent, below the standard corporate tax rate of 30 per cent, due to higher offshore earnings. Westpac’s tax rate remained static at 30 per cent.

Canberra has heaped the pressure on the banking sector in the wake of the royal commission, with politicians most recently castigating the majors for failing to fully pass on rate cuts and charging existing borrowers higher rates than new customers, dubbed a “loyalty tax”. The federal government last month tasked the Australian Competition and Consumer Commission with conducting an inquiry into mortgage pricing.

Business Council of Australia chief executive Jennifer Westacott this week called for an end to the bank bashing.

“We’ve got to make sure we remember how important our banks are … some people in the community would be saying ‘Isn’t that great? You know, a bank’s profit is down’. Well it’s not great. It’s very bad …

“Our banks have been the spine to a strong economy. They have been absolutely essential to it. They remain essential to it. And I think we’ve got to bring the era of bank bashing to an end,” she told Sky News.

EY’s banking and capital markets leader for Oceania, Tim Dring, said there was no sign of easing pressure.

“There’s no doubt that 2019 has been a tough year for Australia’s major banks and the storm clouds show no signs of abating. Declining profits and margins have seen the banks cut dividends and preserve capital, as they batten down the hatches and brace for further challenging conditions ahead,” Mr Dring said.

Uncertainty in global markets, a slowing economy, ultra-low interest rates, increasing consumer and regulatory pressures, heightened competition and significant remediation costs are all putting pressure on the banks, he added.

“For now, asset quality remains strong but benign credit conditions will not continue indefinitely and, when the credit cycle turns, that will squeeze the banks’ future profits even further.

“The banks are also facing additional headwinds in the form of elevated risk and compliance investment requirements and the need for additional remediation provisions,” Mr Dring warned.