The four big Aussie-owned banks - ANZ, ASB, BNZ and Westpac - have been a staple in Watchdog for many years, and quite often a lead article, as now. I last wrote about them in the April 2022 issue (159, "You Can't Bank On It"), This time, they're in the spotlight because they're rolling in it, like pigs in the old proverbial.

ASB kicked off the bunfight, announcing an increased annual profit of $1.42 billion. Westpac increased its annual profit by 12%, to $1.16 billion. BNZ's profit went up 7% to $1.4 billion. And ANZ, the country's biggest bank, bumped its profit up by 8%, to cross the $2 billion mark for the first time ($2.064b to be precise). That adds up to a cumulative $6 billion profit between the four of them. In one year.

That is an extraordinary figure, one made out of the pain of the past few years of the covid pandemic and resulting emergency economic measures and now the cost of living crisis and resurgent inflation. People have looked to the Government to respond. Fat chance. Grant Robertson, the Minister of Finance, said that the banks need to be mindful of their "social licence". What does that mean? Prime Minister Jacinda Ardern was even more vague.

Self-Reflection?

"The Prime Minister took aim at huge profits banks have been making during the cost of living crisis - saying it was wrong as many New Zealanders face financial strain. She said questions needed to be asked whether those making huge profits were serving New Zealanders well, however, the condemnation did not extend to implementing any changes from the Government beyond suggesting self-reflection from the banks".

"Ardern said the banks should demonstrate social licence and a commitment to communities 'that they are serving by taking profits such as those in these current times. We've seen repeated significant profits being drawn by banks in New Zealand. This is not what I would argue as a one-off, we've seen this consistently. It doesn't always take Government intervention for that kind of self-reflection to occur. It's time the banks operating in New Zealand did that very thing'".

"When asked if the Commerce Commission should probe the banking industry, similar to that of fuel companies and supermarkets to collect data on the sector's profit, Ardern said she was not in a position to answer that today. 'This is not a new issue. It's one that we've seen for a number of years, but in the current environment, does it speak to a level of social licence? I think consumers and customers have every right to be asking that question'".

"'[Banks] are continuing to operate within the parameters and the rules that are set, but that doesn't mean necessarily it's giving them the social licence that you would expect from banks who claim to be operating as members of the community', Ardern said. 'I'm simply being frank with you around my observations around what is occurring with bank profits and the fact that, do I have a current solution from Government on that? The answer is no'".

"Self-reflection has not resulted in change to banks to date, Ardern said, 'but in this current environment where we are experiencing a significant cost of living issue for all New Zealanders, I feel a responsibility to call on all those who may have the ability to ease that pressure to consider how they may do so, and I include the banks in that'" (Stuff, 7/11/22), Self-reflection, eh. I bet the banks self-reflected all the way - to the bank.

Excessive Profits

"When is profit excessive? Like pornography, you know it when you see it. Currently, the banking sector is on track to record $10 billion in annual profits with individual banks each making $1-2 billion profits per quarter. The banks have reaped the rewards of the Government's successful efforts (e.g., the wage subsidy scheme) to keep the economy relatively buoyant during the pandemic. Not only did those Government schemes and capital injections save the banks from suffering the bad debts and mortgage defaults that they'd expected".

"In addition, the Aussie-owned banks are also now in line to reap further profits from the Reserve Bank's current efforts to curb the inflation that those initial covid interventions inadvertently helped to generate. For months, the banks have been able to crank up their lending rates. They've also increased their profit margins".

"Much is made of the return on capital - said to be 'only' 12-14% annually - as a measure of whether bank profits are excessive. Supposedly, this puts the banks on average in the middle of the pack of stock market returns. Well... Computing an 'average' annual return on capital when behemoths like the banks are being placed on the same footing as medium size firms and speedy little start-ups (which can have firecracker initial gains) seems to be an entirely bogus exercise. The immense size of the banks makes a 12-14% return on capital socially intolerable" (Scoop, 8/11/22, Gordon Campbell).

Call To Increase Unemployment

"Last week ANZ, New Zealand's largest bank, posted a $2.3 billion profit. For that kind of cash, the Government could double operating funding for the education system, it could hire the 4,000 nurses the health system desperately needs and then some, and it could settle historic Treaty of Waitangi breaches all over again".

"Yet that $2.3b - made from the mortgage interest, credit card fees and other bank charges that ordinary people pay - will accrue to the world's very wealthiest few. In a country where inflation is running at 7.2%, and the cost of living continues to increase, multibillion-dollar profit-making is obscene. ANZ operates in a tiny market of a mere five million people, but its profits would make financiers in London and New York blush".

"... But in 2014 - and even 2021 - these super-profits came and went without much comment. In 2014 the major banks took a combined profit of $4.59b and, outside of the trade unions and researchers who study inequality, there was precious little reflection. But 2022 is different. The Reserve Bank is increasing interest rates sharply, meaning rents and mortgages are becoming more and more expensive. The cost of borrowing for business increases too. The cost of servicing business debts rises while cashflow falls as struggling households slash their spending on consumption. Jobs could soon be lost".

"Indeed, that's the point. Last week ANZ's economist forecast that unemployment must increase to 4.5% to 'stop adding pressure to inflation'. At this point curious readers should consider the obvious corollary to ANZ's assertion: if tens of thousands of people must lose their jobs in order to control inflation, should shareholders not forgo their super-profits too? Even Joe Biden, the President of the US, the spiritual guardian of capitalism, is threatening to levy his own windfall tax if oil and gas companies do not deploy their record profits to decrease prices for ordinary people".

"In New Zealand, though, it was left to the Greens to propose a windfall tax. Finance Minister Grant Robertson was content to remind ANZ that it must maintain its social licence to operate. But if shareholders are known for anything it's their shamelessness. They'll take whatever they make. Instead, it's up to the Government to ensure that it's not only the poorest who pay for inflation".

"When banks, energy companies and others are making super-profits, adding billions into the pockets of the richest New Zealanders while the poorest New Zealanders lose their livelihoods, good politics and ethics demand a response. That response should take the form of a windfall tax. According to figures calculated by First Union researcher Edward Miller, the unemployment rate for Māori, Pacific peoples and women is increasing - even as unemployment as a whole remains relatively flat. These are the groups who are more likely to work insecure jobs, and their increasing unemployment rate indicates that interest rate rises are beginning to impact the poorest, most vulnerable workers".

"Given this is the case why, then, should fiscal policy let the very richest shareholders off the hook? It's obscene that the poorest should have to pay for inflation. If ANZ is conscious about maintaining its social licence during a cost of living crisis it could deploy its profits to keep interest rate rises in check. It won't do that. That means it's up to the Government to act" (Stuff, 3/11/22, Morgan Godfery).

Labour: "Orthodox Servant Of Capital"

Those two extracts from articles by Gordon Campbell and Morgan Godfery say it all, really. And Campbell sums up Labour's craven position very well: "Labour is like a possum in the headlights when asked to take a progressive position on tax. It had a panic attack when confronted with a capital gains tax, a wealth tax, a GST exemption on fruit and vegetables and now, with calls for a windfall tax".

"Labour seems deathly afraid of being seen to be a 'tax and spend' Leftwing Government, and rather prides itself on being seen instead as an orthodox servant of capital. See how trustworthy we are! Banks and supermarkets and other sectors that operate within a virtually captive market know they don't have much to fear from a Labour government".

"And yet Labour still gets labelled as a tax and spend government by its opponents, regardless" (Scoop, 8/11/22, Gordon Campbell). One detail mentioned in passing in Godfery's article is the call by ANZ's economist for the number of unemployed to be increased. That would mean 50,000 people losing their jobs.

Max Rashbrooke responded to that best with a column headed "Sacrificing 50,000 Workers On The Altar Of Inflation Is Madness" (Stuff, 8/10/22). These coldblooded bastards think nothing of calling for tens of thousands of workers to be chucked on the scrapheap, without ever once suggesting that bank profits should be taxed more heavily. And I haven't even mentioned the grotesque salaries pocketed by bank CEOs.

Trim The Fat, Redistribute The Wealth

The banks aren't the only ones making windfall profits - supermarkets, oil companies and power companies are other sectors that have done very well out of the crisis of capitalism of the past few years. But the banks are the most spectacularly worst of the profiteers. Governments have a long history of gutlessness when it come to the banks - during the credit crunch of the Global Financial Crisis of the late 2000s, Helen Clark's Labour government had to be shamed into providing a Government guarantee for people's bank deposits (because the Tory government in Australia did so).

The Ardern Labour government resisted all calls in recent years, including from CAFCA, to follow Australia's lead and hold a commission of inquiry into the banks. Calling for a windfall tax on bank profits is not a controversial policy, it's simply common sense. Trim the fat, and do some long overdue wealth redistribution in what has become an increasingly inequal country.