Ardern says banks not 'demonstrating social license' by making high profits as others struggle, but does not have policy ideas for windfall profits tax; hopes jawboning might work
Why no similar finger wagging at residential landlord profits?
For those renting it has significantly larger impact & market rental prices has risen way beyond costs incurred in providing and maintaining existing residences.
Artificially low interest rates and the Funding for Lending Programme incentivised borrowing for residential housing. This stimulus led to near record borrowing and ultimately strong profits. Any blame sits with RBNZ and Government. And Ardern crows about ‘social licence.’ BH, have bank margins been relatively constant over the last few years?
Perhaps it's time to put some emotional distance between the big banks and New Zealanders, by revealing them for what they fundamentally are: profiteering lenders and deposit-takers.
This could be advanced by pursuing an idea Bernard Hickey aired in June:
"Rather than print more money to make asset owners even wealthier again, the Reserve Bank should instead prepare to distribute ‘helicopter money’ in equal amounts into a separate Reserve Bank account for every resident called a Matariki account. This money should be a new central bank digital currency called the e-tāra, which is pegged to the regular New Zealand dollar, and able to be used by account-holding residents or their guardians with Matariki cards and Matariki apps via EFTPOS and credit/debit card system. It would create a new way to quickly, fairly and cleanly distribute Government payments, run monetary policy and back up the existing banking system in the next crisis."
Bernard - what losses were paid for by the Crown in New Zealand after the GFC? I was in the UK at the time and saw plenty of crown investment over there (although the crown eventually made all that money back) but in New Zealand I didn’t know there was anything for the big five banks. Agree there was liquidity support, but no actual money went into the the majors.
I don't think taxing industries in some sort of one-off way is the answer to having a competitive market. Tax is the ambulance at the bottom of the cliff. Figure out how to make the industry more competitive. One of the starkest opportunities in my opinion is to harness the kiwisaver money into creating a great funding pool for smaller banks to draw from to help encourage their competitiveness in home lending. ~$350b in home loans is the biggest pile of debt in the country and it's well proven to have ridiculously low loss rates (see RBNZ data if you want the proof). Finding a way to encourage Kiwisaver managers to invest in this pool via smaller banks could help them better compete.
Looking at where wholesale interest rates are at present, the banks are giving home owners a comfy ride and underpaying savers. Home Loan fixed interest rates should be ~1% higher than they are.
1. Introduce a Company Financialisation Levy (tax). If a company borrows money AND pays a dividend then it pays an extra, say, 5% income tax. Too many companies have borrowed money to effectively pay a dividend. They may have initially borrowed the money to build a widget making factory but once everything was up and running they didn't use the profit to pay down the debt. Instead they rolled over the debt and paid dividends.
2. Only interest paid in excess of any dividend value is tax deductible. Pay $80m in interest and a $50m dividend then only the excess interest ($30m) is tax deductible. Pay $20m in interest and a $50m dividend then none of the interest is tax deductible. Pay no dividend then all interest is deductible.
3. Require a percentage of NZ's banks to be NZ owned. This would require some of the current foreign banks to sell off their NZ operations. Kiwisaver fund managers would love this. Over time raise the percentage of the banking industry to be NZ owned.
Great post. Please open it up if you haven't already.
So much journalism seems to hinge on $x billion. Gosh, that's a big number instead of trying to understand what's a reasonable rate of profit. Banks' margins compress with low general interest rates and rise with higher rates, and have done so for many years. Is this different?
And it appears that National are trying to use this as another stick to hit Adrian Orr. Not sure that's very fair as even if monetary policy was expanded under covid, that doesn't mean that banks should take unearned profits from it. But then, did Orr do the wrong thing at the time with the uncertainties we were facing and is this 20:20 hindsight? Your thoughts?
Obviously he's not a completely 'independent' voice on the subject, but I did think Sam Stubbs (Simplicity) made some good arguments against a windfall tax, and for growing the competitiveness of Kiwibank, deregulating 'open banking' and, in particular, account number portability that did appear to have been pretty successful with increasing competition in the mobile-phone space - https://www.rnz.co.nz/national/programmes/morningreport/audio/2018865928/growing-calls-for-inquiry-into-bank-profiteering
why does Kiwibank not get more mortgage business? the rates are generally competitive or slightly lower than ANZ... the qualifying process is the same.
The whole notion of existing for the benefit of one's shareholders is the cause of all this misery isn't it? My basic question is: if we had an economy instead of AHMWBTO, and if we wanted it to be different from dog-eat-dog, what might we change?
I agree and it puzzles me why it continues. It's the one thing which makes me doubt Adrian Orr's integrity on this. Perhaps there's a reason (creating sudden instability or something) but I'd find it hard to believe. On all else, knowing Adrian a bit, I think he's doing his job of being a principled, independent governor.
They’re hand in glove against the citizens and are probably both sexist and racist. View people (particularly women and children) as liabilities instead of assets to the country and economy they are. Any other business in various emergency would be prosecuted for pricegouging and breaching both fair and reasonable contracts and circumstances and providing literally nothing extra no services or products improved plus laundering money offshore. Without limit or regulation and paid for by ourselves via a citizen owned Reserve bank. This is a massive case of robbing and pushing into recession and people into hardship simply for profiteering everyone in the country. Outrageous. From the top to the bottom and why it all needs significant reform and cannot maintain “independence” but need to be democratically accountable to the citizens well-being via regulation and an elected Central bank board made up of patriots not traitorous banisters needs to be put in place to ensure our citizens and countries best interests are served not offshore profiteers using our reserve bank and treasury against the people.
Why no similar finger wagging at residential landlord profits?
For those renting it has significantly larger impact & market rental prices has risen way beyond costs incurred in providing and maintaining existing residences.
Artificially low interest rates and the Funding for Lending Programme incentivised borrowing for residential housing. This stimulus led to near record borrowing and ultimately strong profits. Any blame sits with RBNZ and Government. And Ardern crows about ‘social licence.’ BH, have bank margins been relatively constant over the last few years?
Perhaps it's time to put some emotional distance between the big banks and New Zealanders, by revealing them for what they fundamentally are: profiteering lenders and deposit-takers.
This could be advanced by pursuing an idea Bernard Hickey aired in June:
"Rather than print more money to make asset owners even wealthier again, the Reserve Bank should instead prepare to distribute ‘helicopter money’ in equal amounts into a separate Reserve Bank account for every resident called a Matariki account. This money should be a new central bank digital currency called the e-tāra, which is pegged to the regular New Zealand dollar, and able to be used by account-holding residents or their guardians with Matariki cards and Matariki apps via EFTPOS and credit/debit card system. It would create a new way to quickly, fairly and cleanly distribute Government payments, run monetary policy and back up the existing banking system in the next crisis."
Bernard - what losses were paid for by the Crown in New Zealand after the GFC? I was in the UK at the time and saw plenty of crown investment over there (although the crown eventually made all that money back) but in New Zealand I didn’t know there was anything for the big five banks. Agree there was liquidity support, but no actual money went into the the majors.
I don't think taxing industries in some sort of one-off way is the answer to having a competitive market. Tax is the ambulance at the bottom of the cliff. Figure out how to make the industry more competitive. One of the starkest opportunities in my opinion is to harness the kiwisaver money into creating a great funding pool for smaller banks to draw from to help encourage their competitiveness in home lending. ~$350b in home loans is the biggest pile of debt in the country and it's well proven to have ridiculously low loss rates (see RBNZ data if you want the proof). Finding a way to encourage Kiwisaver managers to invest in this pool via smaller banks could help them better compete.
Looking at where wholesale interest rates are at present, the banks are giving home owners a comfy ride and underpaying savers. Home Loan fixed interest rates should be ~1% higher than they are.
Some alternate options: -
1. Introduce a Company Financialisation Levy (tax). If a company borrows money AND pays a dividend then it pays an extra, say, 5% income tax. Too many companies have borrowed money to effectively pay a dividend. They may have initially borrowed the money to build a widget making factory but once everything was up and running they didn't use the profit to pay down the debt. Instead they rolled over the debt and paid dividends.
2. Only interest paid in excess of any dividend value is tax deductible. Pay $80m in interest and a $50m dividend then only the excess interest ($30m) is tax deductible. Pay $20m in interest and a $50m dividend then none of the interest is tax deductible. Pay no dividend then all interest is deductible.
3. Require a percentage of NZ's banks to be NZ owned. This would require some of the current foreign banks to sell off their NZ operations. Kiwisaver fund managers would love this. Over time raise the percentage of the banking industry to be NZ owned.
On Windfall Taxes Vs more active & aggressive Commerce Commission policing of excess profit taking.
https://thekaka.substack.com/p/dawn-chorus-aspirational-for-the/comment/10152541
From big tech to big supermarkets: why monopolies have a vice-like grip
https://www.rnz.co.nz/national/programmes/ninetonoon/audio/2018865150/from-big-tech-to-big-supermarkets-why-monopolies-have-a-vice-like-grip
Great post. Please open it up if you haven't already.
So much journalism seems to hinge on $x billion. Gosh, that's a big number instead of trying to understand what's a reasonable rate of profit. Banks' margins compress with low general interest rates and rise with higher rates, and have done so for many years. Is this different?
And it appears that National are trying to use this as another stick to hit Adrian Orr. Not sure that's very fair as even if monetary policy was expanded under covid, that doesn't mean that banks should take unearned profits from it. But then, did Orr do the wrong thing at the time with the uncertainties we were facing and is this 20:20 hindsight? Your thoughts?
Obviously he's not a completely 'independent' voice on the subject, but I did think Sam Stubbs (Simplicity) made some good arguments against a windfall tax, and for growing the competitiveness of Kiwibank, deregulating 'open banking' and, in particular, account number portability that did appear to have been pretty successful with increasing competition in the mobile-phone space - https://www.rnz.co.nz/national/programmes/morningreport/audio/2018865928/growing-calls-for-inquiry-into-bank-profiteering
why does Kiwibank not get more mortgage business? the rates are generally competitive or slightly lower than ANZ... the qualifying process is the same.
Shock and Orr from the National Party today, hilariously predictable
The whole notion of existing for the benefit of one's shareholders is the cause of all this misery isn't it? My basic question is: if we had an economy instead of AHMWBTO, and if we wanted it to be different from dog-eat-dog, what might we change?
I agree and it puzzles me why it continues. It's the one thing which makes me doubt Adrian Orr's integrity on this. Perhaps there's a reason (creating sudden instability or something) but I'd find it hard to believe. On all else, knowing Adrian a bit, I think he's doing his job of being a principled, independent governor.
I've opened this up for all to read, listen to and share now. Many thanks to paying subscribers for permission.
They’re hand in glove against the citizens and are probably both sexist and racist. View people (particularly women and children) as liabilities instead of assets to the country and economy they are. Any other business in various emergency would be prosecuted for pricegouging and breaching both fair and reasonable contracts and circumstances and providing literally nothing extra no services or products improved plus laundering money offshore. Without limit or regulation and paid for by ourselves via a citizen owned Reserve bank. This is a massive case of robbing and pushing into recession and people into hardship simply for profiteering everyone in the country. Outrageous. From the top to the bottom and why it all needs significant reform and cannot maintain “independence” but need to be democratically accountable to the citizens well-being via regulation and an elected Central bank board made up of patriots not traitorous banisters needs to be put in place to ensure our citizens and countries best interests are served not offshore profiteers using our reserve bank and treasury against the people.