A banking academic says a windfall tax on the sector comes with risk, as major industry players post record profits.
Massey University Associate Professor Claire Matthews told Q+A it's important to remember "banks do fail".
"If in two or three years' time we've had a recession and the banks are starting to have the impact on that - because it takes a couple of years after the recession before the banks actually feel the effects - and they have losses, are they going to get some of those windfall taxes back?
"Because that's part of the reason that they make profits - is to get them through the bad times," she said.
"The risk is if you take in tax what's seen as the windfall profits, you will actually then almost have a liability to compensate the banks when they have difficult times."
Matthews said there was also a question of why certain sectors, like banking, should be targeted.
"If you've got other organisations that are also making windfall profits, then why wouldn't you target them all?
"But also, how do you define windfall profits? And it is a big question to answer."
It comes as the Green Party renews its call for a windfall tax on corporations' "excess profits". The party argues the likes of banks, supermarkets and power companies are not paying their fair share of tax.
When it comes to banking, Matthews said the public focused very much on the profits they make. She said people should also consider the contributions they made to the wider New Zealand economy - such as the employment they provide - and where exactly they made their money.
She said people should also consider that banks had about $500 billion worth of assets.
"So it represents a return on their capital investment of about 11% to 12%, based on their most recent figures."
That's a small number compared to the likes of the Warehouse Group's return on capital of about 20% or Spark's 27%, she said.
She said banks made large profits, fundamentally, because they were efficient and managed to reduce their running costs.
With both major parties talking about investigating New Zealand's banking sector, Matthews added a Commerce Commission inquiry was the best option and most detailed.
The National Party is calling for a short and sharp select committee inquiry. (Source: Breakfast)
She thought a Select Committee inquiry - as National has asked for - would be a politicised "once-over lightly".
"My concern with the politicians is they're looking at point-scoring... I just don't think a Select Committee inquiry is going to be as thorough and take as much time."
As for what a government could do in response to an inquiry to curb excess bank profits, one step could be to encourage open banking, Matthews said.
Labour says it would be "premature". (Source: 1News)
That could mean people could switch banks without having to switch their account numbers.
"Therefore, the perception of how easy it is to change banks increases. At the moment, it really is quite easy to change bank, but there's a perception for people that it's quite difficult."
She said requiring bank account number portability was technologically possible, but complex and expensive.
"But if the Government really wants to do something, that is something tangible that they could do that would actually have an impact that would be obvious."
SHARE ME