Catherine Livingstone of CBA: which sector targeted next?

The Australian 12:00am May 13, 2017

Glenda Korporaal

 Banks have thrown manure into their own Playpen

Commonwealth Bank chair Catherine Livingstone has hit out at the federal government for its proposed $6 billion bank tax, warning that it will “impact the economy and business confidence” and ­increase the prospect of Australia facing “sovereign risk”.

In a hard-hitting interview with The Weekend Australian, the most powerful woman in corporate Australia, a former president of the Business Council of Australia and chair of Telstra, said there had been an “egregious lack of consultation” in introducing the new $6bn tax, which she said was “driven by opinion polls rather than rigorous analysis”.

As the sharemarket lost almost $30bn in value in the past few days, she warned that the Turnbull government was now sending “confused messages to global ­investors”.

“The strength of Australia’s banks is used as an argument to support the country’s credit ­rating, yet domestically the rhetoric reflects a need to ‘punish’ the banks and ‘make them pay’,” Ms Livingstone said.

She said the new tax would lead to lower profits and therefore lower dividends for the bank’s 800,000 shareholders. CBA distributed 75 per cent of its profits to shareholders last year.

She expressed growing alarm in the business sector that the ­surprise bank tax reflects an unpredictable government in Canberra, which could be ready to hit out at any profitable business.

“Such a stance can only serve to heighten domestic policy unpredictability,” she said. “Which sector will be targeted next?”

The country’s largest bank and its biggest taxpayer, which paid $3.56bn in tax last year, CBA is expected to be hardest hit by the new tax, which could cost it more than $300m a year. But CBA and the other banks are still to work out exactly how much their profits will be hit as they continue to digest the details of the tax, which is creating increasing uncertainty among bank shareholders.

The normally low-key Ms ­Livingstone, who has had a long experience working with government dating back to her time as chief executive of CSIRO-backed bionic ear company Cochlear in the early 1990s, described the new tax as reflecting “an alarming lack of coherent policy design principles”. The budget announcements “will impact the economy and business confidence and work against the very objectives of ­stability, competition and accountability they were seeking to achieve”.

Her comments come as the big banks are scrambling to digest the details of the proposed tax in time to make responses to Treasury by midday on Monday.

They were only informed of the tax in phone calls from Treasury secretary John Fraser on Tuesday night and only met Treasury ­officials to ask detailed questions on Thursday morning.

Australian Bankers’ Association chief executive Anna Bligh said the meeting with Treasury ­officials on Wednesday left unanswered more than 20 different ­issues for the banks on how the tax would work.

She said the meeting appeared to raise as many questions as it ­answered, as they struggled to ­detail the workings of a proposal which was hastily put together to raise $6bn in revenue over the next four years.

The government has signalled it wants to prepare draft legislation by Wednesday in time for it to be presented to parliament by the end of the week. The “indecent haste”, as Bligh has described it, has been necessary as the government wants the new tax to apply from July 1 — only six weeks away.

Ms Livingstone rejected suggestions from Scott Morrison that the banks should simply “absorb” the new tax.

“There is a fundamental flaw in the assertion that the cost of the tax can be absorbed by the banks,” she said.

“Any increase in the costs of doing business — be that wages, rent, utilities, or taxes — results in either increased prices to customers, reduced internal investment, lower profits or lower dividends to shareholders.”

Ms Livingstone, who trained as an accountant, said the new tax had to be included in the calculation of the banks’ profits.

“This is basic accounting practice and required under the Corporations Law,” she said.

Ms Livingstone said the tax would reduce funds for investment by the banks in delivering better service outcomes and ­“constrain our ability to be more competitive and innovative, including our capacity to foster the collaborative relationships we seek with others in the sector, such a fintech”.

She said the community, which owned bank shares either directly or through superannuation funds, would be “worse off” as their shares and dividends were hit by the new tax.

In a reflection of the anger now felt at the top levels of the major banks for the way the Turnbull government has not only imposed the new tax but heightened its anti-bank attacks, Ms Livingstone described calls for a more constructive relationship with the banks as “demonstrably hollow, given the egregious lack of consultation in introducing this tax”.

She said a strong economy required a good working relationship between the government and the financial sector, as was shown during the GFC. “A policy which undermines this relationship puts the economy at risk,” she warned.