The New Zealand finance sector union Finsec has cried out in protest to ANZ, Westpac, BNZ and ASB banks paying out large dividends while allegedly making jobs redundant, freezing wages and outsourcing work. According to Finsec, the combined profit in 2009 for the four largest banks was NZD790 million, while their dividend issue exceeded NZD1.7 billion.

In a media statement Finsec said that there is a gross misbalance between the amount of protection the banks have provided to their shareholders, and the amount of assistance they have provided towards New Zealand’s economic recovery. According to the union, banks should be required to maintain local staff numbers in exchange for being underwritten by the Government’s wholesale borrowing and retail deposit guarantee schemes. The media stament went on to say “The Government needs to toughen its regulation of the banks to include social responsibility and national interest measures to stop this immoral preference towards overseas shareholders over the local economy and staff”.

Photo by Finsec

The multi-billion dollar agreement between the IRD and four Australian-owned banks, the Bank of New Zealand (BNZ), ANZ National (ANZ), Westpac and ASB Bank ,was announced in a settlement by Peter Dunne, New Zealand Minister of Revenue on December 23rd. The settlement, believed to be the largest in the country’s history, revolves around alleged tax evasion by the banks through a series of “structured financing” transactions.

Under the conditions of the settlement banks agreed to pay 80 percent of their disputed tax amount. Westpac will pay the highest amount among the banks at NZD865 million, BNZ will follow at NZD658 million. ANZ National and ASB will pay NZD400 million and NZD250 million, respectively. No penalties or interest charges will be levied by the IRD on the owed amounts.

Though the agreement has been heralded as a victory for the IRD and a beneficial compromise for the banks, taxation experts are dismayed with the settlement saying that a Supreme Court ruling would have given valuable clarification to the New Zealand taxation system. Thomas Pippos, Deloitte tax expert, commenting on the settlement, said, “There was hope that as cases were appealed it would provide greater clarity to the avoidance boundaries”.

Photo by Finsec

Following a High Court decision in which BNZ bank was found liable to pay $416 million in unpaid taxes and a possible $238 million in use of money interest, thoughts have been centered around how this would affect the banking institution. ANZ bank, Westpac and the owner of ASB, the Commonwealth Bank of Australia are all also entangled in discussion with the Inland Revenue Department about owed taxes.

Moody’s Sydney-based assistant vice-president Marina Ip stated that while significant, the decision would not see the bank pay more than 60% of its expected yearly pre-tax earnings. So, individually this will not decrease its rating, although it is admitted that growth will be affected, it will not see the bank become a non-profitable business.

Standard & Poor’s has already confirmed their ratings of the banks, including BNZ post the High Court decision.

Following a High Court decision in which BNZ bank was found liable to pay $416 million in unpaid taxes and a possible $238 million in use of money interest, thoughts have been centered around how this would affect the banking institution. ANZ bank, Westpac and the owner of ASB, the Commonwealth Bank of Australia are all also entangled in discussion with the Inland Revenue Department about owed taxes.

Moody’s Sydney-based assistant vice-president Marina Ip stated that while significant, the decision would not see the bank pay more than 60% of its expected yearly pre-tax earnings. So, individually this will not decrease its rating, although it is admitted that growth will be affected, it will not see the bank become a non-profitable business.

Standard & Poor’s has already confirmed their ratings of the banks, including BNZ post the High Court decision.

The scheme was announced by Finance Minister Michael Cullen and was brought in under the Public Finance Act. While he went on to say that the government has total confidence in the New Zealand banking sector, the initiative was to ensure confidence from both banks and New Zealand investors. The move follows similar schemes adopted recently by Ireland and Australia.

The Deposit Insurance is currently is pegged at $150 million dollars, and is an optional opt-in scheme, and is planned initially for a two year time period. Currently registered banks and deposits by institutions like building societies and credit unions are eligible for the scheme.

At the time of publication ASB, Westpac and Kiwibank have all indicated that they will participate in the scheme.