NAB calls for deposit tax relief

Tax concessions on deposits should be a key priority for the October tax forum if the banking system is to address its chronic over-reliance on offshore wholesale funding, according to National Australia Bank finance director Mark Joiner.

Mr Joiner also warned of extra costs as a result of global capital and liquidity reforms to cut the risk of another financial crisis.

With short-term wholesale funding no longer an option under the new rules, NAB had to raise a further $45 billion-$50bn of long-term debt just to maintain the size of its loan book, let alone grow it, he said.

“So I think we’re going to go through a period where access to credit, possibly, and certainly the cost of credit, will be more difficult,” Mr Joiner said.

“That’s the real challenge, and if we don’t deal with it, we won’t have a AAA system, and we won’t have AA banks, and we’ll pay the consequences.”

The NAB finance chief also intensified the push for tax relief on deposits, in line with concessions offered to other asset classes such as superannuation.

This, he said, was the key to a lasting resolution of the banking system’s structural weakness — too much reliance on more volatile offshore funding.

Mr Joiner said Canadian banks now had cheaper access to global funding markets, despite their lower credit ratings, because they had access to a deeper pool of domestic deposits.

Domestic savings rates, he said, had not kept pace with credit growth. Nearly all the growth had come from offshore debt, with major bank liabilities spiking from 7 per cent of assets in 1990 to 24 per cent last year.

“This represents a long-term structural challenge for Australia’s economy and our ability to fund economic growth, create wealth and improve national living standards,” Mr Joiner said.

Responding to a question, he sounded a sombre note on housing prices, saying they were unlikely to rise because prices were “out of step” with international trends and affordability was very low.

The commentary is likely to annoy Commonwealth Bank and Westpac, which have much larger mortgage books than NAB.

The Sydney-based banks have often argued that the domestic market is supported by strong migration and a shortage of housing stock. But Mr Joiner said that when he advanced such arguments to international investors, they responded that he sounded like the CFOs of Irish banks.

“People will realise that taking a 2 per cent pre-tax yield on renting a house that isn’t going up in value doesn’t make sense if you are paying 7-8 per cent for the associated loan,” he said.

People were likely to “fall out of love” with property, as they would with equities, with offshore investors generally of the view that local stocks had “had their run”.

Credit growth of 15 per cent-plus was seen as a thing of the past, and the mining boom was largely “priced in”.

Mr Joiner predicted a re-allocation towards fixed income.

As to the impact on housing bad debts, he said it was “possible” loss rates could tick up from their extraordinarily low level of 0.04 per cent of the home-loan book.

“But we don’t see a major correction (in housing prices),” he said. “We see it languishing for a while.”

Mr Joiner also expressed a strong view on environmental biodiversity, arguing there was a failure to recognise its importance in business value and risk. Currently, there was an ad hoc examination of issues like carbon and water allocation rights. “Biodiversity brings all the environmental issues into one measurable place.”

Bank calls retailers’ bluff

THE Reserve Bank has demolished claims by retailers that their profits are being undermined by offshore online sellers that avoid the GST.

The bank says the use of Australian credit cards to buy goods and services overseas is tiny compared with spending locally, with the bulk accounted for by Australian tourists travelling abroad.

Retailers have been calling for a lowering in the $1000 threshold at which overseas purchases are liable for GST to counter what they claim is unfair competition.

The bank collects data from financial institutions about credit card spending. This shows that spending online with Australian merchants is now about 10 per cent of total spending with credit and debit cards. The largest share of this is likely to be travel and payment of utility bills.

The bank says spending on credit and debit cards overseas has been growing rapidly, rising at 15.5 per cent since 2005, compared with 10 per cent growth in domestic online credit card purchases.

However, the bank says: “It is likely that much of this growth in international purchases reflects the significant increase in the number of Australians travelling overseas.”

Last year, Australians made 6.25 million trips overseas, up 55 per cent from five years ago. The stronger dollar has made foreign goods cheaper.

The RBA said although it was not possible to identify online offshore purchases, “the data suggest that the share of this type of purchase in total spending remains relatively low”. It said items posted overseas and delivered by Australia Post had been rising at 10 per cent a year since 2005, compared with an average annual decline of 1 per cent in local mail.

DAVID UREN

Westpac calls foul on net name rights

DAYS after trying to flog the Qant.as domain name to the Flying Kangaroo, online entrepreneur Dominic Holland has struck again — with Westpac Bank in his sights.

Mr Holland has offered the bank the rights to the Westp.ac domain name, which he owns.

But like Qantas, Westpac has scorned Mr Holland.

“Westpac is not interested in engaging with Mr Holland,” a bank spokeswoman said. “We believe his approach is opportunistic and unethical.”

Mr Holland declined to comment on Westpac’s response.

Last week Mr Holland claimed to to have attracted a top bid of $1.3 million for the Qant.as domain name in a private auction.

It appears Mr Holland has stitched the brand names to separate country domain codes. The .as suffix in Qant.as belongs to American Samoa, while .ac in Westp.ac represents Ascension Island.

Mr Holland remains resolute that Qantas and Westpac have no legal standing, despite both parties issuing letters alleging trademark infringement. “Qantas sent through a letter of demand for the domain (Qant.as) stating trademark infringement,” he said.

Mr Holland said his lawyers had concluded that Qantas had no legal claim on the domain name. He had also reviewed American Samoa Domain Registry laws and World Intellectual Property Organisation rulings.

Last week, Mr Holland redirected http://Qant.as to display Virgin Blue’s homepage to show Qantas the domain name could fall into the hands of a competitor.

A few days later the website went offline. “Qantas used hostile tactics and bullied my previous host into suspending my account by stating the domain infringed on their trademark,” Mr Holland claimed. He has since changed hosting providers.

A Qantas spokeswoman declined to comment on legal proceedings, saying the airline was “currently assessing its position”.

Both http://Qant.as and http://Westp.ac display a URL shortener. Mr Holland has yet to reveal the identity of the individual or company whom he claims bid $1.3m for Qant.as.

It is unclear if Mr Holland is correct in his legal assessment but he isn’t the only one who has purchased country level domains that might represent a brand.

An example — unrelated to Mr Holland — is the ninten.do Dominican Republic domain that is registered to an individual instead of the Japanese games giant.

Goldman chief calls for pay changes

THE chairman of Wall Street firm Goldman Sachs, Lloyd Blankfein, said that the anger over bank compensation programs and bonuses was “understandable and appropriate” and that multi-year guaranteed employment contracts “should be banned entirely”.

Lloyd Blankfein in Frankfurst yesterday Picture: Bloomberg