Will there be a levy on bank profits to pay for the cyclone rebuild?

Thursday, 23 February 2023

Reserve Bank governor Adrian Orr tells MP last week why he raised the OCR and what the options are now for the Government.

Tom Pullar-Strecker is a senior business journalist at Stuff.

ANALYSIS: Reserve Bank governor Adrian Orr had another dig at the banks on Thursday, suggesting again that Cyclone Gabrielle had raised questions about their resilience, and “financial inclusion”.

“We ourselves have been really challenged in the last week getting physical cash to places that have been ‘de-banked’,” he told Parliament’s Finance and Expenditure select committee.

Previously, at a media conference on Wednesday, Orr said he had heard some “horror stories”.

“There's nothing more distressing than seeing a café serving hot coffee beside a bank whose ATM doesn't work – one had a generator,” he said, appearing to suggest banks should have been better prepared.

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“We ourselves have been really challenged in the last week getting physical cash to places that have been ‘de-banked’,” Orr said on Thursday.

It is probably no coincidence that the Banking Association put out a statement on Thursday afternoon setting out the steps its member banks had been taking to assist customers.

Although not directly referencing Orr’s criticisms, chief executive Roger Beaumont said banks had offered a range of support to customers and communities affected by the cyclone, including making $1.4 billion available in low-cost lending and donating $6.5 million to disaster relief funds.

The latter is not an enormous figure when put against the expected multibillion-dollar cost of the cyclone and the combined profit of more than $6b that the big four banks posted last year.

It is also hard to say how “wowed” anyone should be by the $1.4b of low-cost lending, $1b of which has been promised by BNZ and $400m by ASB.

Organisations often discount their products and services for reasons other than altruism, indeed sometimes as a profit-maximising strategy.

Were those loans discounted in the sense that 10% off at Briscoes is a discount? Or were they made “at cost”, or something in between?

Banks would be likely to be the big losers from a levy on excess profits, if the Government went down that track.

How could one know?

Bank loans are commonly priced at different rates based on the risks and circumstances of the loan.

That is not to imply that the discounts weren’t genuine, merely that it would be hard to ascertain how generous they were without a tonne of information that even the banks might find it hard to provide as it could vary from customer to customers.

The banks have good reason to be seen to be the very best corporate citizens right now.

Reserve Bank governor Adrian Orr had another dig at the banks on Thursday, suggesting again that Cyclone Gabrielle had raised questions about their resilience, and “financial inclusion”.

Green MP Chloe Swarbrick had a tax on “excess profits” in mind when she questioned Orr at a select committee hearing on Thursday morning.

Swarbrick asked Orr whether such a levy might be a way of helping pay for the cyclone rebuild while minimising the inflationary implications of the natural disaster.

Orr at least did not appear to recoil at that idea.

Rather, he said that revenue could be raised through measures that were either more general or more specific, and that there were precedents overseas for countries introducing levies to pay for natural disasters.

Given the huge profits posted by the banks, they would be the juiciest if perhaps not the only target for a levy on excess profits.

It would be conspiratorial to think that Orr might have criticised the banks for a lack of resilience in order to help pave the way for a levy on bank profits.

His criticisms appeared consistent with previous comments the Reserve Bank has made about financial inclusion and its concerns over the future of cash.

Any levy on profits also carries the obvious risk that most of the levy could simply be passed on by big businesses to their customers, especially given businesses that were paying the levy would commonly be operating in markets that were less than competitive.

That, and the perceived risk of damage to the country’s reputation as a place to do business, means a levy on bank profits would seem an outside possibility.

But that doesn’t completely rule out the chance that banks are being eyed up to take a fall.