News Corp Australia’s shares plunged in early trading after the government’s tax crackdown on foreign companies emerged on Monday.
The Australian dollar rose as much as 1.5 per cent to a six-week high, as the government warned banks to expect further crackdowns.
The tax department said the banks had been subject to a further six-month review and a reduction in the amount of cash they could lend to businesses.
It also said that it had issued an additional notice of intention to introduce a further reduction in cash lending to financial institutions.
The move came a day after the Reserve Bank announced it would increase the capital requirements on banks by about $1 billion, and would impose a one-off levy on the proceeds of those transactions.
“This is an ongoing process which is expected to result in an impact on the capital base of some banks, including those that are subject to this additional levy,” it said.
News Corp’s share price plunged 10 per cent on the news.
“The impact on bank capital base and its impact on their liquidity will impact on our business and we will have to consider the impact on operations and earnings, as well as potential adverse impacts on the retail banking sector,” a spokeswoman for News Corp said in a statement.
News of the tax crackdown prompted some investors to dump their holdings of the firm, which employs nearly 100 people, as a result of the announcement.
“As I wrote in the last article, we have been trading at less than half our level of profitability for many years,” one analyst said.
“At this stage, the prospect of a further tax hit will probably have less impact on my stock portfolio than the previous one.”
The company has been losing money for years, and is also facing a financial squeeze as it has been unable to keep pace with growth.
“We have been hit by this tax levy for a number of years and we believe it is going to have a significant impact on financial performance for the foreseeable future,” the spokesperson said.
It is not the first time News Corp has been hit with a tax levy.
The company last year reported a $1.8 billion loss for the three months to September, and has faced increasing financial pressure.
“With all of the changes in the law and tax changes coming in the near future, we anticipate that this levy will be even more of a burden on the company, and the result is we expect to see a reduction of cash flow and lower margins for the coming months,” the spokeswoman said.
She said the bank would be making a full comment on the tax announcement when it was made public on Monday, but that it expected it to be in the “single digits” over the coming quarters.
News Corporation chief executive Howard Smith told a meeting in London last week that the company was prepared to take on the additional tax levy, despite the potential impact on its financial position.
“It’s a bit of a head-scratcher.
We’re not in a position to make a decision at this stage,” Mr Smith said.
