Prime Minister Jacinda Ardern is criticising banks for consistently producing very high profits at a time when others in the community are struggling.
She did not suggest a particular policy to reduce or tax bank profits, but said banks were not demonstrating "social license" and needed to 'engage in some self-reflection.'
Windfall taxes on bank profit margins that are rising because of higher official interest rates have been considered in Britain and Europe. Australia imposed an annual 'Major Bank Levy' of 0.06% of the liabilities of banks with more than A$100 billion of assets in mid 2017, which included Commonwealth Bank (the owner of ASB), ANZ Bank, Westpac, National Australia Bank (the owner of BNZ) and Macquarie Bank. That extra tax on banks was imposed by a conservative Liberal-National Federal Government in July 2017 and is expected to raise A$1.85b per year by 2024/25.
Ardern's comments follow calls from Green Finance Spokesperson Julie-Anne Genter last month for a windfall profits tax on large corporates that benefited from Government support and implied guarantees during the Government's Covid response.
Ardern was asked in her post-cabinet news conference late on Monday afternoon about Westpac NZ's record profit result earlier in the day, with the bank's annual net profit after tax reaching $1.047 billion.
Ardern said the banks generally had not demonstrated 'social license' by repeatedly making very high profits at a time their community was struggling.
"They all seek the same social license. They exist in the community. They know that this is a time where New Zealanders are facing increases in the cost of living like many other of our international counterparts," Ardern said.
"The question I would pose to them is they may be operating as other banks are, but are they demonstrating social license? Are they demonstrating commitment to the communities they are serving by taking profits such as those in these current times. That would be my question," she said.
Asked if they were demonstrating social license, she said: "No."
Ardern agreed the banks were complying with the law on taxes.
"They're continuing to operate within the parameters in the rules that are set, but that doesn't mean that necessarily it's giving them a social license that you would expect from banks who claim to be operating as members of the community and within the community," she said.
"Some have said things like windfall tax. That's actually a very different set of scenarios usually for those where it is being applied. Offshore, you will see in different scenarios they've applied it to, for instance, energy companies who have benefited from particular events," she said.
"The argument here is actually this is a very different set of circumstances. We've seen repeated significant profits being drawn by banks in New Zealand. So this is not what I would argue is a one-off. We've seen this consistently, them posting significant profits. I think there's questions need to be asked to management of these banks as to whether or not they're serving their communities well."
'I don't have a policy solution. Yet.'
Ardern said the Government did not have a policy to address the high profits and said any questions on specifics should be addressed to Finance Minister Grant Robertson. She would not say if the Government was considering naming banking as the next sector for a market study by the Commerce Commission.
"We don't have any particular policy that would have an impact on what we are seeing, but not everything that should change, will change, at the hands of government," she said.
"It is not unusual, of course, for companies or indeed other operators in our communities to assess whether or not what they're doing at any given time is the right way from a corporate responsibility perspective to be behaving. It doesn't always take government intervention for that kind of self reflection to occur.
"I'm simply being frank with you around my observations around what is occurring with bank profits. Do I have a current solution from government on that? The answer is no. But I do share a view as obviously someone that takes a perspective on the behalf of the welfare of all these Zealanders that what we see I don't think is justifiable.
"So I'm not coming here with a policy prescription, but I'm sharing a view. I don't currently have in front of me a Commerce Commission market study that can tell me exactly that level of detail that I can for, for instance, for the grocery sector.
"We know that from the Commerce Commission's work, that the grocery sector in New Zealand is taking excess profit of roughly a million dollars a day. Now I don't have that evidence base in front of me now for the [banking] sector.
"I'm sharing a frank view, but beyond that I don't have a policy prescription."
'There is something wrong with bank profits'
Asked if there was something wrong with the level of bank profits, she said: "In this environment, yes. I'm not speaking to every individual bank and the situation in this market. I'm giving a general response to a question that was asked without giving a policy prescription."
Asked if banks' job was simply to make the biggest possible profits for shareholders, she said: "Sure. But then on that basis at the same time, you see some banks promoting the fact that they are taking an environmentally responsible line by for instance, offering lower interest rates, the decarbonisation initiatives buying EV cars, insulating your home."
"They frequently make decisions that may be seen to be less about profit and more about social corporate responsibility. I'm just asking them to broaden the remit of consideration in that regard, The point I'm making is normal solutions to these questions don't solely come from government.
"Maybe banks themselves may look at their profits that they're posting in this current environment. And ask the question of whether or not in this current environment there is a way that they can support their customers through this period as well."
Asked if 'self reflection' would be enough to change their views, she said: "Obviously that self reflection has not bought change to date, 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."