Shaw James: Oral Questions — Questions to MinistersText is incorporated into the Bound VolumeShaw James: Oral Questions — Questions to Ministers[Sitting date: 03 November 2015. Volume:709;Page:7559. Text is incorporated into the Bound Volume.]5.JAMES SHAW (Co-Leader—Green) to the Minister of Finance: What specific steps will he take to minimise the economic effect from billions of dollars of bank profits being taken out of New Zealand by overseas-owned banks?Hon BILL ENGLISH (Minister of Finance): The Government is focused on reducing New Zealand’s obligations to the rest of the world and we have made some progress on this measure. The net international investment position is now 62 percent of GDP compared with minus 84 percent of GDP in early 2009—the lowest it has been since 1991. The Government has taken the specific steps of limiting spending increases and is moving to get on top of debt and households have had positive net savings each year for the past 5 years which is the first time that this has happened since the early 1990s. Of course where profits are legally made by overseas banks then we do not take specific action to take their profits off them other than to tax them. Reserve Bank data shows that banks paid almost $2 billion in income tax in the year to June 2015 so that part of their profits was specifically not repatriated because of Government action.James Shaw: Would the Minister like to see more money staying in New Zealand or is he OK with banks sending overseas the equivalent of almost $1000 for every New Zealander?Hon BILL ENGLISH: As I would point out to the member they get to repatriate whatever is left over after they pay their tax and as I have pointed out last year they paid $2 billion in tax. We are satisfied that New Zealand is making progress on gradually reducing its obligations to foreigners and that is expressed through the measures that I pointed out before. Of course individual New Zealandershave the choice of banks that they use and should they use New Zealand - owned banks then those profits are probably more likely to stay in New Zealand.James Shaw: Is he satisfied that the Reserve Bank is adequately fulfilling its responsibility under Part 5 of the Reserve Bank of New Zealand Act to ensure that the banking system is efficient given the sector’s record billion-dollar profits?Hon BILL ENGLISH: I am pretty sure that the Reserve Bank is—in fact I believe that the Reserve Bank is—fulfilling its obligations which are fundamentally to have a stable banking system. If there is one thing that we have learnt in the past 7 or 8 years it is that one thing worse than profitable banks is unprofitable banks because that has dragged down economies ranging from the US through to Ireland and Iceland. The Commerce Commission plays a role in assessing the competitiveness of our banking sector and in a number of reviews over the years it has indicated that in its view the banking sector is competitive. New Zealanderscan of course vote with their feet. They can remove their business from banks that they believe are making excessive profits—if they are overseas banks—and join New Zealand - owned banks of which there are a number that are quite successful.James Shaw: Does he accept that bank profitability has nothing to do with the stability of the banking industry that he was just referring to given that Lehman Brothers Merrill Lynch and Bear Stearns were all highly profitable in the years running up to their spectacular collapse?Hon BILL ENGLISH: They were different sorts of banks from the big banks here in New Zealand—that is for sure. They tended also to make their profits by taking considerable risk—for instance trading in derivatives which our banks simply do not do beyond the absolute necessity to maintain their deposit-holding and lending functions. It is better to have strong banks. You cannot have a strong bank that does not make any money. These ones make profits under competitive conditions and as I said New Zealanders who think that those profits are excessive can take their business elsewhere.James Shaw: When farmers are struggling to meet their loan repayments and families in Auckland are being saddled with huge mortgages just to buy their first home does he think that it is appropriate that the major foreign-owned banks are all making record profits?Hon BILL ENGLISH: In the cases of both the farmers and the Auckland homeowners it is “willing buyers / willing sellers”. We may have a view about the conditions that lead to high prices for farmland or housing but they are choices made by sensible New Zealanders who understand the obligations that they are entering into. In fact there are a whole lot of profitable businesses. In fact if the businesses were not profitable the banks would not be able to make profits either and if households were not able to meet their obligations the banks would not be able to continue to function as businesses. The member is putting forward an unrealistic choice.James Shaw: Will his Government take action to keep more cash in the New Zealand economy and drive efficiency across the banking sector by investing in Kiwibank to compete properly with the big Australian banks?Hon BILL ENGLISH: The best thing that New Zealanders can do to enable Kiwibank to compete more with the big Australian banks is to sign up to Kiwibank. In the end that is what will make the most difference. The constraint on that bank is simply its ability to get customers. Of course New Zealanders can also join the TSB Bank or my favourite bank SBS Bank based on the Southland Building Society.