Recent events in Cyprus have once again brought the global financial sector into sharp public consciousness. This time, as well as a bailout, there was a serious – and ominous – demand from the EU that Cyprus make a “one off” levy (or tax) on the savings of Cypriots and others living in that country.
Acknowledgement: NZ Herald – Hard EU bailout terms anger Cypriot savers
Deposits up to and over €100,000 ($158,000) would be levied with a 9.9% tax whilst below that threshold would be pay a ‘lower’ portion of 6.75%.
Unsurprisingly, the proposed tax resulted in a run on cash withdrawals at ATMS (see: Cypriots asked to surrender up to 10 percent of bank balances in return for EU bailout); banks closed their doors (see: Fury as banks closed to avert run); global sharemarkets were affected (see: Stock Markets Fall Amid Fears Of New Eurozone Crisis); and the British government was forced to fly in one million euros to pay military personnel (see: One Million Euros Heading To Island For British Military Personnel ).
Pressure on the Cypriot government was such that in the last 48 hours, the Savings Tax was dumped (see: Rejection of Deposit Tax Scuttles Deal on Bailout for Cyprus). The Cypriot Parliament voted thirtysix against, with nineteen abstaining. It is noteworthy that not one politician risked his/her life by voting for the proposal.
Europeans. They know how to put pressure on their elected representatives.
Meanwhile, back home, in the Land of the Long White Cloud and several million sheep…
Acknowledgement: Radio NZ – NZ bank bailout scheme is last resort, says PM
Key’s statement here is chilling,
“At the end of the day we’re talking about emergency provisions. These banks are heavily regulated, they have significant oversight and lender of last resort facilities at the Reserve Bank.
This is really in the event that a bank got itself in such a terrible mess that it fell over and had to restart again.”
If that is supposed to be reassuring – it is not. In fact, if anything, this is a clear warning to every single New Zealander that if a bank gets into trouble – or if there is even a hint of trouble – to get in quickly and withdraw every cent that a depositor might have.
If a bank gets in trouble, and has a crippling run on deposits, it will be as a direct consequence to Key’s plan to dip into people’s savings to bail out that institution,
The Reserve Bank’s Open Bank Resolution (OBR) plan, due to come into effect at the end of June, would mean a partial loss on all deposits if a bank failed in New Zealand, in order to fund the bank’s bailout.
Acknowledgement: Fairfax media – Reserve Bank scheme news knocks kiwi
Ironically, this is where Libertarians – who consider all taxation as theft – may have a point.
Taxation is one thing. We pay it so we can enjoy the benefits of a modern society and economy. Roads, bridges, schools, hospitals, police, etc, do not materialise out of thin air.
Dipping into people’s savings accounts – which has already been taxed one way or another – is not a tax. It is expropriation.
Expropriatiion – that dreaded word which National and it’s supporters levy against the Left when we talk about re-nationalising State assets. But which evidently is ok if a bank goes bust and has to be bailed out?
If this principal is to be applied across all sectors of society and the economy, then one could imagine that employees and sub-contractors of Mainzeal should have been taxed to bail out that company. Why should a bank be different to a construction company? Is there a difference?
If this expropriation of deposits was ever to happen, do the depositors gain any benefit? Do they gain shares in the Bank as compensation? Or, if not, does that mean that shareholders gain the benefit of other people’s money being used to prop up their investments?
One could imagine an invalid on a WINZ benefit having his/her meagre savings “taxed” to bail out a bank – to preserve an investor’s shareholding that may be worth millions of dollars. This isn’t justice or common sense, this is nasty, medieval, “robber Baron” stuff.
The biggest irony here is that, according to the principals of the free market, this is a kind of subsidy to a business – a subsidy enforced by the State, against the will of people who are not even shareholders in a particular bank.
Even marxists would balk at such extreme State power to seize people’s money. They’d simply nationalise the bank and be done with it. Depositors would still have their modest savings left intact and untouched.
Key’s proposal is not just crazy from almost every perspective – it is an insult to our intelligence. Especially when banks are doing very well with their profits,
When profits for New Zealand’s four largest banks are at a staggering $3.5 billion (for 2011/12) – an increase of 22% – then that must raise serious questions why Dear Leader is even considering making depositors pay for any potential future bailout.
Shouldn’t the banks be looking at a deposit insurance scheme of some sort? You’d think so, wouldn’t you?
Perhaps, though, an event like this is what might be required to jolt New Zealanders out of their collective complacency. It’s only when the middle classes are hit hard in their wallets, that they stop being passive consumers and start to reassert themselves as active citizens.
Because, my fellow Kiwis, you can bet your last dollar (before the banks seize it) that John Key’s $50 million will be somewhere else – probably safe in some Swiss Bank account.
The people of Cyprus (and Iceland) have shown us the way.
Remember the so-called “Light Bulb” and “Shower Heads” affairs, in 2008, where National slammed the then-Labour Government as engaging in “Nanny State” politics? (see: Showers latest target of Labour’s nanny state ) National’s Nick Smith said,
“People should be free to use as much water as they like when showering, provided they don’t expect others to pay for their profligacy. User-pays is a far better approach than nanny state.”
So using eco lightbulbs and smaller shower flows, to conserve electricity and water is nasty “Nanny Statism”.
But going into people’s savings accounts; stealing their money; and handing it over to banks – is all hunky dory? Well, I’m glad that’s settled.
(Cue theme music to ‘Monty Python’s Flying Circus’.)
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