An excess profits tax would curb obscene corporate profits and ease life for the rest of us

By
John Minto
-
91
1424

While working people the world over are struggling with the cost of living and the fallout from the post-Covid rise in interest rates, the corporates and the super-rich are creaming it.

ANZ Bank is the latest to announce eye-watering profits – more than $2 billion for the past year –  as it hikes interest rates to force mortgage holders to pay more to the banks and thereby reduce demand for goods and services and so reduce inflation.

These new levels of corporate obscenity are an affront to humanity at a time of financial crisis.

Finance Minister Grant Robertson offers no defence to the corporate greed of ANZ and the other big companies. He is happy for workers to pay for the cost of the economic recession; he has no plans to reign in the corporate vultures.

However, instead of crashing the economy and crushing the rest of us to get inflation under control, we need to get the corporates and super-rich under control – an excess profits tax would be part of the solution.

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U.S. lawmakers like Senator Ed Markey from Massachusetts have introduced legislation calling for an excess-profits tax “to protect consumers from profiteering and stand against economic inequality.” The Ending Corporate Greed Act that Markey is co-sponsoring with Senator Bernie Sanders and New York Representative Jamal Bowman would subject firms with over $500 million in annual revenues to a 95 percent tax on profits over and above their 2015-2019 profit levels, adjusted for inflation.

This proposed excess-profits tax would stay in effect through 2024. The tax would apply to profits, not revenue, and companies that have increased prices because they actually do face rising expenses would pay no tax under this legislation. Those corporations subject to the new excess-profits levy, the bill’s sponsors point out, would only be those that raise prices “to further enrich their CEOs and wealthy shareholders.”

European progressives are also pushing for excess-profits taxes. The higher prices corporate giants are charging, they explain, reflect their “monopolistic or oligopolistic power to set market terms.” Norway, a European nation with an excess-profits tax already in effect, expects this levy to jump tax revenue by as much as 50 percent in 2022.

Why are the big Australian banks the “sacred cows” of our economy?

Why do we just accept the banks’s public relations spin when we know their CEO salaries and bonuses are tied to driving up profit at the expense of their customers?

If Norway can do it and US and European politicians can take up the call, why is no-one here talking about it?

It would be a win, win for the people struggling the most. More government revenue to spend on struggling social services like health and easing pressure on families overall.

Another idea we should consider is a one-off wealth tax:

Other progressives on the global tax scene have a different but related inflation fix to offer: a “one-off wealth tax.” Such taxes have a long history and, in the years right after World War II, led to some real fiscal successes.

Over those years, eight different European nations levied time-limited wealth taxes. These levies typically gave each nation’s richest a fixed number of years to pay off a one-time tax on their personal fortunes. Finland, for instance, gave its richest five years to pay a 21 percent tax on their wealth as of 1945. Italy’s wealthiest had seven years to pay off a 60 percent tax on their 1947 fortunes.

What’s that whimpering sound I hear? Is it Grant Robertson hiding in a cupboard to avoid having to hold the rich and super-rich to account?

91 COMMENTS

  1. Or how about banks have to substantially increase the interest they pay on deposits as a way of reducing their profit? If consumer spending is fuelling inflation then encouraging saving could reduce spend. Slightly simplistic but why not?

  2. Firstly, what do you consider excessive? Their profits are only 8% on last year and largely caused by the rebound in the economic after lockdowns ended.

    • Their cash profit is up 8%. Net profit was up 20%. Watson said the numbers were a reflection of the economy. Well….yes. Annual average GDP to June 2022 was 1.0%. Hmmm.

      • If their previous return on capital was, say, 5%, then an 8% increase implies that their return is now 5.4%. This doesn’t sound as if it is something to be too concerned about.

      • There is no “cost” to capital. Capital may be reduced through the depreciation of assets in which capital has been invested – though firms compensate for this by reinvesting part of their profits back into the business. Losses due to insufficient revenues being earned would also contribute to loss of capital.

        Interest is not a cost of capital, but a cost of borrowing. It is a personal cost of the borrower, who would be either a proprietor or a shareholder. Businesses don’t borrow; proprietors borrow and invest in businesses.

  3. All citizens would be worse off if the banks were not profitable as we would lose our savings and businesses would fold .As it is shareholders Kiwisaver being one of thosec and those with savings are getting a good return. The bank is following the governments edict to put up interest rates to dampen the economy and inflation. I would agree that the CEO wages of big corporations are higher than they should be but having worked for a company with a bad CEO and experienced redundancy because of him it is important to attract these best of the best to maintain profitablits and growth.
    Westpark is used by our government rather than Kiwibank because they need the assurance of a big bank .

    • To be fair Trevor a tax on excessive profit by definition, is not about making the banks unprofitable. I am sure the Norwegians aren’t killing their banks, and the US proposal sounds measured.

      • Good point but who defines excessive profit .While the 2 billion profit is large I believe it is based on a worth of 20 billion soma return of 10 percent and as I said this goes to shareholders .

        • The original post gave an idea. Any increase in profit over, say, 25% more than the previous year’s profit can be considered an excessive profit, for example.

          • A windfall would have to some unusual event. If profit increases due to, say, an increase in efficiency, or a change in business model, I would not regard that as awindfall no matter how excessive.

    • Too funny Trevor…Westpac and the other big 3 rely on a tacit Govt guarantee.
      Kiwibank as mentioned below does not presently have the tech capacity to handle Govt biz.
      The Govt definitely does NOT RELY on these parasites that take 6 billion in profits per annum.
      The Natz try to stymie Kiwi Bank,Kiwisaver and the Cullen Fund because they compete with their private donors…enterprises.

    • We would not lose our savings due to bank failure because our savings, up to a certain threshold, are guaranteed by government I think, though I could be wrong, that the threshold is $100,000. Losses above this would be considered a normal business risk, in a way that monies deposited for the purpose of facilitating day to day transactio9nswould not.

      A better way of protecting savings would be to impose a 100% reserve ratio on demand deposits, which would have prevented the banks creating money from nothing using those deposits as security.

  4. Have researched, but cant find the volume of Australian Banks shareholders whom are Kiwisaver investors.

    If significant Kiwisaver funds (and as a conservative fund who would not? ) are in Australian Banks (or any other “high profit” organisation), in a round about way your Kiwifunds will be compromised by this taxation.

    Similarly one needs to look at where the Superfund is invested and the potential shortfall this fund may end not paying taxes on.

    https://www.stuff.co.nz/business/129856917/nz-super-fund-pays-221-billion-in-tax

    It is to simplistic to look at the profits without seeing where they flow to and how that affects public investors such as Kiwisaver and Superfund.

  5. I’m inclined to think banking should be a “public utility” and in the hands of the state.

    Bank profits seem to be on the increase because interest rates are rising while house prices are excessive.Stopping them creating credit would help since thier having to compete for the public’s savings would probably dampen property prices.

    • Trevor your response:ll citizens would be worse off if the banks were not profitable as we would lose our savings and businesses would fold .

      Is silly. No one has suggested they shouldn’t make a profit anywhere.

      What is so stupid from a Kiwi perspective is the amount that goes off shore, what is wrong with Kiwis who are not banking with Kiwibank.

      Originally Clark said when Kiwibank came on the market they wouldn’t have the expertise. What garbage. If it was moved from Westpac to Kiwibank the staff would follow. They did eventually open it up to tender for the job. Kiwibank I understood doesn’t have the capital because the government only set it up to appease Anderton and they couldn’t give a dam if it failed or not.

      And anyone who says they don’t have the technical infrastructure to handle it is peddling more nonsense. If they don’t they would get it fast.

      I think it is outrageous that our Government does not bank with OUR BANK. That in itself would have made it hugely successful.

      • “And anyone who says they don’t have the technical infrastructure to handle it is peddling more nonsense. If they don’t they would get it fast.”

        They needed to first disentangle themselves from the Post Office. That process has already started, though i don’t know whther it has yet been completed.

    • Absolutely.

      We have allowed numerous banks here, they should all be booted out. Why is any bank that is owned by another country allowed to be called Bank of New Zealand, so wrong. New Zealand should be trade marked and used by Kiwi owned companies only.

  6. The less the state is involved the better as it then becomes a weapon against the party not in power and decisions can be made for the wrong reason.

    • So we just let the banks and business run rampant and make huge profits by screwing people?

      The larger and more involved the state is, the better off it’s people are. If you look at small state countries, there is more poverty, homelessness and businesses are allowed to just make unfettered profit and who cares about wellbeing.

      There was no poverty and homelessness in the old USSR.

      • You think their free and open press would have reported any poverty and homelessness even if the reporter did end up writing his piece from a camp in Siberia .

        • Just admit it, you are fine with bankers and shareholders coining it, while people are forced to live in their cars.

      • Yes Millsy, most of them had the same dreadfully cold little flats and a loaf of bread to share. So many people were happy under the soviet regime and tens of millions didnt die of starvation in the first 20, 30 years of the regime.

        But I take your point, small countries need to be governed differently because they can never achieve economies of scale and struggle to have all the nice to haves that are routinely found in larger heavily state controlled countries.

        • There would be many families who would gladly take a poky Soviet style flat over a tent or a shitty motel room anyday.

          Anyway, they are little different to those 1970’s state houses, or council flats.

          • I lived in a state house in the worst suburb in our city in the early 1970’s and it was nice. Reasonable size, great lawn, fairly quiet street, bright white timber house and plenty of good solid rimu throughout. I went to friends in various other state houses and they were all fine too.

            i think you are mistaking them for the 80’s and on when the government stopped keeping them up and perhaps social decline had also set in.

        • Also, it might be worth mentioning when the USSR collapsed, all housing was GIVEN to the tenants. That is right, the governments didnt flog it off to greedy investors and developers, they simply transferred the ownership to the people living in them to do as they wished.

          To be honest, I think this should partly happen in NZ — those who have been in state housing for longer than 30 years, should have ownership of said house transfrerred to them.

        • That said, housing in the USSR prior to Kruschev was generally pretty shitty. Those communal apartments left a lot to be desired for, and resemble the situations (a lot of) people have to endure today.

  7. The question is if these profits of billions go offshore, then yes, tax the profits. If the profits are reinvested back into N.Z. businesses and households, then no.

  8. Interesting Ideas. I personally would rather see a comprehensive CGT bought in at 33% with a corresponding reduction of our lowest tax brackets or the creation of a tax-free threshold. On this issue of corporate profits, I think we should increase the dividend withholding tax on profits that are going overseas. Although this would be fraught with difficulty with foreign ownership that are protected by NZ international tax treaties. Just a thought.

  9. You think their free and open press would have reported any poverty and homelessness even if the reporter did end up writing his piece from a camp in Siberia .

  10. As a hard left Christian, it’s obscene greed is the issue.

    Greed is the sin we have to curb here.

    And it would appear our only option is tax.

    Anything voluntary, just has not worked.

    Greed is a Sin.

  11. I’d rather the bank kept their money than give it to a government that’s prepared to squander 300 million dollars arranging a shotgun marriage of TVNZ and RNZ.

    • The merger is to keep MasterChef off our TV screens. No more DIY, no more Celeb Treasure Island. Just wall to wall documenataries.

    • have you been listening to the RNZ broadcast playing slowed down and backwards too? they’re coming to take our firstborn. Oh wait, the commercial operators are already feasting on them.

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