Sex, Drugs & Electoral Rolls Part VIII: Tax The Bastards

There's an industry out there in the New Zealand economy which seems to inevitably make its cash by befouling the environment it operates in. Continuously milking those whom they almost jokingly claim to look after, and sending their pernicious poison on downstream to pollute the wider commons enjoyed and inhabited by other New Zealanders. Meanwhile, escaping substantial regulatory attention for the costs of their activity because they're so large and so integral to our economy that we dare not think even about doing without them or reining in their excesses.

Now you could be forgiven for thinking I'm talking about dairy farmers. And it's true, they bear all the hallmarks of the above characterization - by virtue of being "too big to fail" for our economy, and enjoying a positive relationship with the 'powers that be' which prevents their serious externalities of environmental pollution from being properly restrained.

But I'm not. Instead, the portion of the Kiwi dream machine I wish to draw your attention to today is none other than the Dairy Farmers' own present-day bete-noir.

The Australian-owned banking sector.

Let's get into some facts.

There are five major banks presently operating in New Zealand. Four of these are foreign - and more specifically, Australian - owned. The fifth one, as you may have guessed, is the Government-backed Kiwibank. It is undoubtedly significant that the only way a true New Zealand Bank has been able to rise to the size and scale of the 'Big Four' foreigners, is through tacit and tangible government backing and support.

Between them, the 'Big Four' (made up of ASB, ANZ, the oxymoronically named 'Bank of New Zealand', and Westpac) raked in almost five billion dollars worth of profit last year after tax. That's more than one thousand dollars for every man, woman and child presently domiciled in New Zealand. It's about the same figure as the combined total profits of all companies presently traded on the NZ Stock Exchange.

Considering our own GNP (that is to say, the actual national income of New Zealand as a nation) is a mere 58 billion or thereabouts, this effectively means these Aussie banks are making almost a tenth of what our entire nation does.

And they're doing it off our backs.

So how are they managing this? What kind of con or international best business practice are they pulling to generate a truly astounding twenty two percent return on equity.

The answer's simple in generalities, but complex in detail. (these things often are)

Basically, the 'Big Four' banks have somewhere around 87% of the New Zealand market between them. Kiwibank, while a valiant and vigorous new-entrant competitor (relatively speaking), barely cracks ten percent (with less optimistic figures having them between four and eight percent).

This wouldn't, in and of itself, be a problem (even though my ardent Nationalist proclivities would dearly love for an arm of the NZ Government to become a powerhouse majority mainstay of our financial markets) ... but the Oz banks themselves have a nasty proclivity towards what you might term anti-competitive styles of operation.

This isn't just me, a lowly magazine columnist and occasional political iconoclast saying this - world-renowned ratings agency Standard & Poors quite literally stated that the "nature of the [NZ Banking] system" is outright "oligopolistic". Other political luminaries have previously drawn attention to specific issues like the vastly inflated credit cards rate we pay compared to people over the ditch using exactly the same service, bankers' resistance to debt-mediation processes with struggling farmers, illegitimate collusion over inter-bank lending rates that produced a dividend of up to $1.5 million dollars a day while the scam was running for the banks in question, and far higher fees generally for NZ customers (a main source of Aussie bank profitability here) as compared to their Australian equivalents.

Clearly this lack of competition, regulation and oversight is providing some prime pickings for the financial institutions of New Zealand's 'rich cousins' across the Tasman - at our quite literal expense.

Kiwibank's previously been in a position to throw a competitive spanner in the works by offering cut-price rates to consumers thanks to the New Zealand Government forgoing the option to take dividends and pouring capital into its new pet financial wrangling house. Unfortunately, as you may have seen recently, NZ Post's financial position appears to be deteriorating and our present Government is somewhat spending money averse, meaning we're left high and dry when it comes to serious tools to try and influence the domestic banking market in order to get a better deal for our own people.

The closest we've had to "Government Intervention" with the banking sector recently is the vague suggestion of the Government holding personal meetings with foreign banks in order to urge them not to screw over struggling dairy farmers *too* heavily during a time of arguable economic crisis.

Despite the existence of a Treasury report which clearly states that these offshore banks are quite probably using a "lower level of [government] scrutiny surrounding fees to extract uncompetitive profits", there would appear to be no serious appetite on the part of our Government to actually take the matter in hand in a way similar to what the Reserve Bank of Australia did when confronted with an arguably equivalent situation.

As far as the relevant Minister - Epsom's perennial also-ran, Paul Goldsmith - is concerned, there's no sign of a problem worth investigating.

Meanwhile, New Zealand consumers continue to be wildly overcharged and exploited; and as a result, Australian financial institutions are able to quite literally laugh all the way to the bank to the tune of five billion dollars a year.

Something must be done.

But what?

Well, given that the issue at hand is a coterie of foreign-owned banks 'earning' supernormal profits at the direct expense of ordinary New Zealanders, I should like to propose a 'super-tax' on the revenues of these offshore-owned finance houses.

Depending upon the level at which this is set, such a levy would stand to raise a very substantial amount for the nation's coffers. Perhaps even enough to plug the whole Bill English put in New Zealand's books by doling out tax cuts for the (domestically) wealthy in 2010.

But the real economic justice of such a super-tax is not simply in how much cash it can raise for the state.

No, it's in the fact that it puts money BACK into OUR economy for the explicit benefit of the people it was fleeced off and extorted from in the first place. This is what you might term a 'restoration of balance', and why I'm inclined to call it a 'social dividend'.

There are numerous and exciting uses such money could be put to, ranging from large-scale make-work schemes through to the construction of sufficient homes to help deflate our housing bubble, and many other suggestions besides.

But speculation as to usage is of arguable secondary importance to the fundamental necessity of restoring distributive justice to the situation, and ensuring that the Government doesn't sit idly by while a large and appreciable chunk of our GNP disappears offshore.

Because when it comes to looking after the interests of Kiwis banking with the foreign-owned banks ... it would appear that our present Government - somewhat ironically - has low interest.