Marxist nonsense

Morgan Godfery writes:

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 4000 nurses the health system desperately needs and then some, and it could settle historic Treaty of Waitangi breaches all over again.

The “good” news is that ANZ pays tax on its before tax profit.. Sadly it probably won’t see 1,000 more nurses or a 25% increase in education funding – but that is because of Government priorities.

I’m surprised Morgan seems unaware of corporate tax.

Or maybe he is aware and is advocating that the tax rate on companies should be 100% – as trialed so successfully in the USSR and North Korea.

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.

Actually that profit will go to anyone who has a KiwiSaver account or retirement fund that has shares in ANZ. ANZ is not owned by a few billionaires. All of the top 10 shareholders are fund managers who represent tens of millions of investors.

And profit alone is almost meaningless without context such as the size of the company, and what the return on capital is. A $2 billion profit on $4 billion equity is a huge profit, but a $2 billion profit on a $15 billion equity is not as large.

ANZ operates in a tiny market of a mere 5 million people, but its profits would make financiers in London and New York blush.

Not really. Banks in Australia have had profits of $6 billion, in the UK around $20 billion and US around $66 billion.

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.

As the OCR rises, it is true mortgage rates increase and bank revenue, but so does the cost of their borrowing. Also defaults sadly probably increase.

The answer to that issue though isn’t Marxism, but maybe looking at the policy advocated by Trevor Mallard where the Reserve Bank can change KiwiSaver contribution rates as an additional tool, rather than only have the OCR as a lever.