Australia and New Zealand Banking : Submission to Treasury on Major Bank Tax

# I ssue Comments

1

Interaction with other regulatory objectives

• Consideration should be given to how the bank liability tax interacts with other regulatory objectives to ensure there are

• In particular, given that the Government has stated that the new tax reflects a charge for the perceived benefit that banks

• If banks are paying a fee through a new tax for a perceived government guarantee, there would be little economic benefit

• Consideration of the bank liability tax should also be re-opened in the future to the extent that any other further relevant

• Consultation with financial services regulators including APRA and the RBA is recommended prior to finalising the policy design

no unintended consequences for financial system resilience and competition

derive from an implicit government guarantee, it would be appropriate to re-think the need for any bank loss-absorption framework in Australia .

of applying a new loss-absorption framework that required Australian banks to pay higher premiums to foreign investors for the funding required to finance the borrowing requirements of Australian households and businesses

regulatory changes are implemented

2

Unintended consequences for bank and system liquidity

• In its current form, the Government's proposal would tax liabilities raised to fund the High Quality Liquid Assets (HQLA) which are the cornerstone of liquidity resilience introduced

under the Basel 3 reforms at both a bank and system level. ANZ believes that this is inconsistent with other regulatory objectives and that, at a minimum, an exempt ion should be made for the amount of any liquidity buffers that a bank operates with to ensure compliance with regulatory minimums.

• Consideration should also be given to possible unintended consequences for liquidity conditions in markets for Australian Commonwealth Government Securities (ACGS) and Semi­ Government securities. For example, applying the tax to repurchase agreements on a gross basis rather than a net basis may result in reduced market-making activity in government securities markets. It may also cause bid-offer spreads in government securities markets to widen (noting that these markets already operate on very thin margins)

3

Anti-competitive aspects relative to foreign banks

• The current proposal gives foreign banks a competitive advantage over Australia banks in domestic and offshore markets across a range of products and services, including:

• It is recommended that if a new bank liability tax is implemented it should be applied to the domestic liabilities of all banks operating in Australia with global liabilities above

•deposit markets both locally and offshore where Australian banks compete on a global basis to attract customer funds and strengthen liquidity profiles; and

•derivative markets that are used to help Australian companies hedge financial market risks

$100bn.

4

Derivatives

• Application of the tax to gross derivative liabilities would cause a pricing distortion in derivatives markets.

• Australia's major banks use these markets to facilitate capital flows and hedging of financial market risks for our Australian customers.

• ANZ proposes that derivative liabilities should be permitted to be appropriately netted.

5

Avoid "double-taxing"

• The design of the bank liability tax should incorporate a principle of avoiding double-taxation.

• For example, liabilities in offshore branches that are subject to foreign taxes in those jurisdictions should be exempted in order to avoid double-taxing those liabilities both in Australia and the foreign jurisdiction in which they are raised And double-tax outcomes could eventuate due to the same liabilities being taxed twice as a result of corporate structure.

• Further detail and time is required to be able to consider this issue more fully and appropriately.

6

Operational matters

• The development and implementation of any new regulatory report takes a minimum of 12-18 months. Existing reports should be utilised to the extent possible. Any requirement to implement a new report should consider any adverse implications for the timing and delivery of other existing regulatory reporting changes.

• The inherent volatility of bank balance sheets (largely driven by customer activities and movements financial market rates) should be taken into account when designing anti-avoidance measures. Careful consideration of the calculation methodology should limit the need for extensive anti­ avoidance provisions and burdensome and unnecessary compliance requirements.