Bank and tax systems due for overhaul

The National Government can no longer be complacent about the state of play within our banking and financial sectors given their central importance to our economic prosperity, said Green Party Co-leader Russel Norman today.

“The Parliamentary Inquiry into Banking has found that New Zealand does not have a competitive banking sector. This lack of competition has cost their customers up to $2 billion of additional interest rate expenses,” said Dr Norman.

The report was the result of a collaborative effort between the Green, Labour, and Progressive Parties which considered submissions from the banking, economic, and productive sectors. The Inquiry found that up to 70 basis points of Official Cash Rate (OCR) cuts were not passed on to the banks’ customers. At current debt levels, this represents an additional $2 billion in interest costs to the farm, business, and home mortgage sectors.

“With four banks controlling 90% of the banking assets here, we have effectively lost control of the lifeblood of our economy. The Government needs to seriously invest in Kiwibank to bring it up to the point where it can compete effectively with the big four Australian-owned banks,” said Dr Norman.

The combined profits of the big four Australian-owned banks now exceed the combined profits of all other companies listed in the NZX 50 on the New Zealand Stock Exchange. Without effective competition, the banks are able to pass on the cost impact of the economic downturn to their customers, rather than absorb their fair share of failure.

“The Inquiry also confirmed that current tax settings are ‘seriously distortionary’ when it comes to how money gets lent in our economy. A capital gains tax targeting investment properties is another obvious fix for restoring productivity in our economy,” Dr Norman added.

Dr Norman hopes to meet further with Labour and National to discuss the implications of current tax loopholes which effectively encourage investment in property at the cost of more productive alternatives in business development and agriculture.

“Changes in the OCR alone are no longer enough to deliver sustainable economic prosperity. We need a competitive banking sector that doesn’t profit at the expense of the rest of New Zealand. We also need complementary changes to our tax system to help reposition the economy onto a more productive footing.”

References:
Report of the Parliamentary Banking Inquiry:
http://www.bankinquiry.org.nz