Kerre Woodham: Are the banks paying their fair share of tax?

To start the morning, I wondered about looking at the fairness  - or otherwise - of the corporate tax rate.

The Finance Minister, according to a New Zealand Herald story, has quietly asked Inland Revenue to look at the appropriateness of the tax settings being applied to banks. Nicola Willis confirmed to the Herald a wide range of options is being considered to ensure the major banks are paying their fair share of tax.

She wants advice back ahead of next year's Budget, which is expected to be delivered just months before the 2026 general election. She said, “our work to enhance banking competition is wide-ranging and as part of this of sought advice on whether the major banks are paying their fair share of tax,”.

I've been interested, she went on, in how New Zealand's bank tax regime compares with Australia and elsewhere, particularly in light of the significant profits Australian banks make from Kiwi customers.

No decisions have been made, recommendations have not yet been taken to Cabinet, so she's not going to comment on specific proposals at this stage.

I would have thought if the company tax rate was a set amount and the banks are paying that, then they're paying their fair share of tax.

I was listening to Heather talking to Claire Matthews, the banking expert from Massey, this morning.

Claire Matthews said the way she thought it might work would be the corporate tax rate would be lowered for all corporates except the major trading banks. Everybody else will be lowered, but banks, so they wouldn't in effect be punished, they just wouldn't benefit from any changes to this tax regime.

But as Claire Matthews pointed out, banks already contribute a significant amount to the New Zealand economy. 

They pay a very large portion, something like 20% of total tax, total corporate tax in New Zealand. So they're paying a huge amount of tax, so if you drop the corporate tax rate but keep the bank’s tax at a higher level, you, the Government could manage to avoid the actual impact on their tax take. 

I think there's a real danger here. Are they going to suddenly make supermarkets pay more because they, too are Government’s favourite whipping boys and girls? Why are they being singled out?

Sure, I would love it if I didn't have to pay the house price twice over, but I understand that when you're lending money to individuals and to businesses, there is risk involved with that so you have to pay for that risk. 

I don't imagine the banks would just close their doors, decamp and head back over the Tasman, there's still money to be made. But I just don't understand why banks would be asked to pay more while the rest of corporate New Zealand pays less.

I don't want a bank to fail. It's not in the country's best interest for a financial institution to go under. We've seen the damage done when the BNZ had to be bailed out, and then the different finance companies were bailed out, why on Earth would we want to see banks fail if they're paying their fair share of tax?

 I have no skin in the game other than a hefty mortgage, which I would love to see reduced, but I don't necessarily see it's the bank's fault that they are the ones who profit from lending money.  

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