2017 Budget Impact: Big Bank Shares
The share prices of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and Macquarie Group Ltd (ASX: MQG) could come under selling pressure today following the Government's 2017 Budget.
What happened?
In the Government's 2017 Budget, a 0.06% tax will be imposed on banks with liabilities exceeding $100 billion. Basically, that means that only the five banks above will be subject to the bank tax on their liabilities.
However, the question remains: How will the banks pass on the cost to customers?
In my opinion, it's unlikely that the funding cost will be stomached by the big banks.
Why tax big banks?
The big bank tax is expected to raise $6.2 billion for the Government over coming years.
The Government said its bank tax is a result of the Budget deficit, and the banks must do their part to restore the balance.
Will I pay more interest on my mortgage?
The Government's 2017 Budget said that the tax 'levy' will not be imposed on bank deposits less than $250,000 or household mortgages.
The Australian Competition and Consumer Commission (ACCC) will undertake a price inquiry over the next year and will force the banks to explain any changes to mortgage interest rates, fees and charges. That will help customers understand what's going on with their mortgage repayments — and provide motivation for homeowners to shop around.
So if they do increase their interest rates — shop around!
What will happen to bank shares?
It remains to be seen what the Big Banks will do, but it's highly unlikely they will sit on their hands. Over the past fortnight, we have seen CBA, NAB, ANZ, Westpac and Macquarie report their financial results, with only Macquarie impressing investors.
Indeed, despite impressive headline profit figures for the Big Four, most of the banks reported thinner profit margins and increasing competitive pressures. Therefore, they are more likely than not to pass on the costs associated with the Big Bank tax.
While we wait to see what happens, it is possible that Big Bank share prices will come under pressure as investors grow increasingly concerned about the rising regulatory burden and potential cuts to dividends.
