Finance Minister Nicola Willis and State-Owned Enterprises Minister Paul Goldsmith have suggested one way to drive greater innovation and less usurious profit-making in the banking sector is for the state-owned Kiwibank to expand its product offering and scale.
Kiwibank chief executive Steve Jurkovich is said to be up for it and backs his team to compete aggressively and successfully against the four Australian-owned banks.
On Saturday, Willis made the concept the centre-piece of her speech to the National Party conference, so it is now clearly on the agenda - and rightly so.
The idea is for Kiwibank to raise external capital to grow. For political reasons, this would need to be confined to domestic sources, including - based on their assessment of the commercial merits - the Super Fund, ACC, KiwiSaver providers and other local private equity, and perhaps a public issue of shares, with ownership limited to New Zealand residents.
Willis and Goldsmith’s idea more honours the memory of Kiwibank’s founder, former Alliance leader Jim Anderton, than the privatisation brigade of the 1980s and 1990s.
It is most emphatically not a privatisation, but more the opposite. Unlike the controversial selloffs three decades ago, or even the Key-English Government’s more modest sale of shares in the electricity companies, not a single one of the Government’s Kiwibank shares would be sold. Rather, the company itself would raise new equity to add to its balance sheet to fund the expansion.
That is, it’s not like the owners of a price-competitive panel-beating business deciding to flick off some or all of the business, to fund other priorities like a new car or overseas holiday. It’s more like them partnering with their friends and neighbours to raise capital to open up new branches of their successful business in new locations.
Politically, National has always been wary of pushing this sort of thing, for fear it would be misrepresented by Labour as privatisation.
But, ironically, it is Labour that has always been more open to the idea, with then-SOE Minister Trevor Mallard strongly pushing for something similar in the Clark Government’s third term.
Sadly, National’s then finance spokesman Sir John Key, saw political advantage in misrepresenting Mallard as advocating privatisation and put the kibosh on the idea. For 15 years, it thus went nowhere under the Key-English Government, or the Ardern-Hipkins regime that followed.
Full credit, then, to Labour’s current finance spokeswoman Barbara Edmonds, for not similarly stooping to Key’s misrepresentation of the proposal, at least so far.
New Zealand benefits from the four Australian-owned banks being highly profitable and thus financially secure. We weren’t affected by the Asian Economic Crisis and the Global Financial Crisis as badly as other countries - which makes the Government’s excessive borrowing after the latter even more egregious.
But being highly profitable is one thing. Taking the mickey is another.
The four Australian-owned banks deliver their shareholders returns on equity (ROEs) of between 12 and 15% a year. That’s not just higher than other banks operating in New Zealand but makes them among the most profitable banks in the world.
Little wonder, then, that their profits in dollar terms are so out of whack with those of any other businesses limited to our small 5.3 million domestic market. The Australian banks’ local branches in Auckland and Wellington are hardly global players.
Worse, as anyone, including me, who has consulted or worked for the big-four banks’ parent companies in Australia, it’s not like they take New Zealand seriously. The local chief executive may be a big fish in the New Zealand pond but is a mere regional manager when they visit head office in Sydney or Melbourne.
Their job is not to innovate or support New Zealand businesses become more productive and profitable, but to deliver the biggest dividend they can with the minimum of political and commercial fuss. If they succeed for a few years, they might become eligible for a more serious and even better-paid C-suite job in head office when they return home.
To be fair, this is exactly the attitude most of us would take - and should - were we high in the Australian banking hierarchy, required to take a global perspective to the business. Moreover, no one wants to drive them from our market.
But, as Willis told her party’s faithful, New Zealand banking customers also need disruptors and mavericks, willing to offer a wider range of products. By that she includes a willingness to lend against other than residential property when backing small- and medium-sized businesses to grow.
Poignantly, that was Anderton’s original vision, when Kiwibank was adamantly opposed by National and Labour. A quarter-century later, Anderton’s bank is part of the economic furniture, no less than the earlier free-market reforms that similarly remain in place. No Government - except maybe one led by Act - would ever sell Kiwibank or close it down.
It makes sense, then, as Willis declared, for Kiwibank to grow.
Yet, with the books now only six years from the post-2030 permanent deficits that Treasury has projected since 2006, no Government – blue, red, black, magenta or green - would prioritise pumping more cash into Kiwibank over investing in the state’s core business of transport, hospitals, schools, law and order and defence.
Willis is treading carefully, at this stage arguing only to “have a look at what’s possible [and] explore all the options”. So far, the wider political class and media seem prepared to do that with a little more seriousness and open-mindedness than managed previously in the MMP era.
