- Date published:
3:57 pm, February 20th, 2023 - 69 comments
Categories: budget 2023, climate change, debt / deficit, Economy, Environment, tax - Tags: banks, margaret thatcher, windfall taxes
According to Finance Minister Grant Robertson the repair bill for the recent cyclones will be similar to the direct cost to government of the Canterbury earthquakes, in the $13 billion region.
Even if a chunk of that is, as he says, absorbed by insurance and the existing budgets of government agencies, there will still be a gaping budget hole. As well, the need to fund climate adaption measures and costly managed retreats is even more urgent.
That hole should be partially filled by a windfall profit on our banking sector, which has been making super profits recently. Former Massey University Banking Professor David Tripe once declared that any return above 1 percent on total assets was excessive and all four of main Australian-owned banks, which make up 85 percent of this country’s banking sector, are currently in that position.
The combined net profit of the big four, ANZ, ANZ, BNZ and Westpac, was around $10 billion last year according to Reserve Bank data.
The RBNZ data shows the average turn on equity for the four behemoths was 13.7 percent. ASB, last week posted a 10 percent lift in half year profit to $840 m despite what Chief executive Vittoria Shortt described as “challenging times”. It is on track for a full year profit of close to $2 billion and its return on equity is a whopping 17 percent. It paid out a $400 million dividend to shareholders which was actually down on last year’s massive $650 million.
ANZ Bank made a net profit of $2.3 billion last year, while BNZ made $1.4 billion and Westpac $1 billion.
These excessive profits have been aided by the cost-of-living crisis, where the RBNZ has been hiking interest rates to tame inflation and the banks’ margins have been rising even faster than interest rates. So, people have been hit by a double whammy – dealing with the steeply rising cost of living and having to pay higher interest rate bills as the banks rack up super profits.
The time is right to impose a one-off windfall tax. Financial commentator Janine Starks even last May in a commentary on the cost of living crisis said that despite high inflation fuelling a cost of living crisis, many companies are making record profits. “So why are we not discussing a windfall tax? In other countries the debate runs hot.”
With damage from the cyclone so catastrophic, we have a doubled-down rationale for acting.
Windfall taxes are a method of rebalancing the fairness of extraordinary circumstances. They can also be used to reduce inequality and fund social policies that help those now experiencing hardship. They were used in Aotearoa during both world wars.
There are plenty of other precedents. EU countries such as Italy and Spain are currently imposing such taxes on energy companies which have been making super profits as a result of the Ukraine war. Italy last year introduced a windfall tax of 10 percent on energy profits.
The most interesting former example comes from former Conservative UK prime minister, Margaret Thatcher, who in 1981, introduced a windfall tax on banks.
The opposite of a socialist, the hard-line monetarist raised the equivalent of about $NZ6 billion in today’s money that represented about a fifth of the profits banks were pocketing at the time.
In her memoir The Downing Street Years, Thatcher responded to critics of the move, saying “the fact remained that they had made their large profits as a result of our policy of high interest rates rather than because of increased efficiency or better service to the customer.”
If Margaret Thatcher can do it, it is pretty hard to argue why a Labour government can’t.
Some experts believe the infrastructure deficit as result of the cyclones will cost hundreds of billions to fix. The government has just $40 billion of wriggle-room before its debt ceiling is hit.
The forestry industry should be the other industry that should be shoulder-tapped to help foot the repair bill. However, a windfall tax is not appropriate for this industry as their profits are made over a very long time-frame. It is more a matter of getting these companies, almost all owned by large overseas-based pension funds, to pay for some of the damage for their irresponsible practices.
There is also needs to be a large government push to more tightly regulate these companies so the same kind of damage from the slash does not reoccur.
The government has already received significant political momentum from how it has responded to the disaster, so much so that it must be the frontrunner to win October’s election, and a bold and popular move to impose a one-off windfall tax on banks, will help lock-in its advantage.
(Simon Louisson is a former reporter and briefly a media adviser for the Green Party)