Macquarie enigmas: High tax bill, short explanation.
When Macquarie Bank handed down its profit result the other day, there was one thing that really stood out: its humungous tax bill.
Five years ago dear old Maccas paid just 7 per cent tax. Now it pays 40 per cent, well above the corporate tax rate of 30 per cent, and up half a billion dollars in the past two years alone. That's civic-mindedness for you.
We confess that we have a big mushy soft spot for this bank, especially since it rebounded with such aplomb from its near-death experience in the financial crisis. We all pitched in gladly as taxpayers, of course, backing it to raise a cool $17 billion on the bond market with our sovereign guarantees, helping it to survive and prosper.
And it has not failed us. Like any high-minded philanthropist, however, Macquarie covets a low profile when it comes to its giving. The left hand, if you like, may not know what the right hand is getting up to.
We sought comment from the bank about its elephantine tax bill but were advised chief financial officer Patrick Upfold was too busy to talk. Then we were cordially invited to ''please check any facts you want to put to us''.
There are not really a lot of facts to put. There is a thwacking tax bill of $827 million followed by two short lines of explanation: ''Rate of 39.5 per cent broadly in line with prior year due to geographic mix of income and tax uncertainties.''
Sadly, there is scurrilous chatter doing the rounds that ''tax uncertainties'' is code for dear old Maccas being rumbled by the taxman, being forced to pay penalties and so forth. Further, there are vile accusations that the bank ought to provide a little more by way of disclosure, even inform the market perhaps.
What these cynics fail to comprehend is that it is vulgar for one to boast about one's charity. Surely modesty precludes Upfold from discussing the matter since he himself has had such an intimate involvement in the bank's affaires fiscales.
Unlike credit market risk, compliance risk and other assorted risks which are reported to the bank's risk management group, tax risk sits in the financial management group, which reports to Upfold.
We will delve further into the enigmas of Macquarie's tax shortly. In the meantime, something has just come in.
News Corp artform
What a poignant moment your humble essayist has just endured, happening upon none other than the latest set of accounts for Rupert Murdoch's News Corporation.
When it comes to paper shuffling and skiving out of tax, Murdoch's faithful are without peer. They are veritable masters of origami. Like the Macquarie of yore, tax is an art-form, not an obligation.
Unlike Maccas though, News has a legion of scribes, mobilised daily across the nation, avidly issuing instructions to anybody prepared to listen on precisely how to conduct their lives. How they should vote, adore billionaires, hate greenies, you know the drill.
And at the very time we perused the News financial statements, we noticed the lead story on the News Limited websites:
''Welcome to the welfare nation: half of Australia's families pay no net tax''. Damn those welfare bludgers. It was blood-boiling stuff.
News deemed this tax-bludgers yarn to be so important that it even ran above the ''Nude revelry at holiday house of horrors'' story on the Daily Tele's home page.
There was video coverage, too, captioned, ''Abbott budget pain 'shared by all'''. Shared by all? Really? Shared even by Abbott's cheerleaders at News Corporation?
Casting an eye over the latest profit result, it appeared that News' revenues for the three months to March were $2 billion and its tax bill was … wait for it … $1 million.
It gets better. Drum-roll … it actually recorded a $686 million income tax benefit for the nine months to March. How good is that! Taxpayers not only had the pleasure of sage advice from Murdoch's commentators but also the privilege of transferring $686 million of our sovereign wealth to News Corp.
Back to Maccas
Back in the day Macquarie was right in the game. In 2008 it even recorded a tax rate of 1.7 per cent after a legendary ''tax arb'' deal, a currency swap so successful it was embarrassing. It delivered a profit of $850 million in Hong Kong and a matching loss in Australia. Ergo big tax losses.
Trouble was it also blew away a big chunk of franking credits and stuck out like a sore thumb. Since then, it has expanded further overseas, further constraining capacity to pay franked dividends.
With tax rate and franking situation, Maccas has to earn about $160 to get the return to shareholders that $100 used to make.
The bank has increased its payout ratio and it made a special return of capital from Sydney Airport. Shareholders can be well pleased, except on the issue of tax and disclosure. The combination of a 40 per cent tax rate and a 40 per cent franking has taken its toll.
As for the ''geographic mix of income and tax uncertainties'', the latter says nothing and the former has not changed sufficiently to match the deterioration in tax rate.