Updated May 22, 2017 14:55:47

Photo: Westpac says the bank levy equates to 4.3 per cent of dividends paid in 2016. (ABC News: Nic MacBean, file photo)

Westpac has blasted the Federal Government's new bank levy as "bad public policy" in an open letter to shareholders.

The Government forecast that the levy will raise $6.2 billion in revenue over four years by imposing a 0.06 per cent tax on certain bank liabilities.

This will apply only to Australia's five biggest banks - CBA, Westpac, ANZ, NAB and Macquarie Bank.

Westpac is the first of those banks to release figures on how the levy will affect its profit.

According to the bank's preliminary estimates, the levy would affect around $615 billion of its liabilities, and will negatively impact its 2017 full year results (for the year ended 30 September 2017).

The bank forecast that it would incur a "new cost" of $65 million after tax for its second half results.

That represents a cost of approximately $370 million (or $260 million after tax) per year.

Westpac stated this equates to around 8 cents per share in the first full year of the levy, and 4.3 per cent of dividends paid - based on its full-year dividends of 188 cents per share in 2016.

"The exact cost will depend on the final form of the new legislation passed and the composition of Westpac's liabilities," the bank noted in its statement to the ASX.

Westpac also affirmed it may pass on the levy to its customers, shareholders, suppliers, staff "or some combination of all four".

"No company can simply 'absorb' a new tax," Westpac stated in an outright rejection of a key Government argument.

In particular, Westpac decried the levy as an "inefficient tax" which "does not apply to foreign banks, giving them a competitive advantage and favouring foreign shareholders over Australian ones."

The Government has not yet introduced to Parliament the legislation which would enact the levy, but expects to have it in force by July 1.

The Government says the banks can "absorb" the tax, but what does that actually mean?

Until then, Westpac is advocating two amendments to the levy - firstly, "the new tax should include foreign banks to ensure Westpac is not competitively disadvantaged."

Another ground for complaint is that, "the levy currently has no end date, so it becomes a permanent tax impost on companies that are already amongst Australia's largest taxpayers."

To address the issue, Westpac suggested that a "sunset clause" should be included in the levy.

The reason for that is so "the tax stops at the end of this current budget cycle in 2021", which "would be consistent with the Government's announcement that the goal is to support budget repair".

However, Treasurer Scott Morrison has already rejected calls for a sunset clause.

Topics: banking, company-news, business-economics-and-finance, tax, federal-government, budget, australia

First posted May 22, 2017 12:40:03