PM’s bank-bashing a brief distraction

Fresh from its conference, Labour has reappointed Adrian Orr as Governor of the Reserve Bank for another five years while also launching a slightly bizarre attack on bank profits.

Bank profits are, in the prime minister’s view, too high, especially with the cost of living continuing to grow apace – still at over 7%. Jacinda Ardern stressed that hers was a personal view.

She had no answer as to why bank profits were a bad thing, falling back to the old trope of ‘‘social licence’’, which is essentially an ill-defined extra level of behaviour – over and above the legislated and regulated laws of the land – that commercial enterprises are somehow supposed to undertake to earn said licence.

The comments impelled the National Party to also take aim at the banks, but ask what the Government was doing about it. National, too, said the banks were making big profits and Nicola Willis and Christopher Luxon made concerned noises about this. Clearly no-one wants to appear to be on the banks’ side. God forbid!

In fact, Ardern’s comments appear to be little more than a thought bubble with the effect of the Government trying to spread the blame around for continuing high inflation. It doesn’t appear there was anything particularly strategic about it or that the Government appears to be ready to do anything about it.

Finance Minister Grant Robertson ruled out a market study on the issue. This is partly because there don’t appear to be any particular issues with competition within the sector.

National has tried to tie the banks’ big profits to Orr’s reappointment – that if he hadn’t kept the money spigot on for so long during the pandemic, inflation wouldn’t be so high, asset prices not so engorged and banks’ profits would have been lower. The funding for lending programme which subsidises bank lending is still running.

There is also the populist fact that grates with a certain segment of the public that our big four banks are all Australian-owned.

Orr has continually argued that New Zealand has found itself in a similar inflationary spiral as other nations – and has lower levels than many. Robertson has said the same. They also point out that really ramping up interest rates would have other negative effects – on employment and in the housing market especially.

Orr’s detractors argue that the whole point of having inflation targeting of the sort New Zealand does, means the country is master of its own inflation destiny – regardless of what’s happened overseas. On this reading, Orr has failed in one of his basic tasks.

Ultimately bank profits are a distraction for the issues facing New Zealand and a bit of vague bank-bashing won’t long distract the public from the one, real-life, indicator that rules them all: Inflation.

Ardern had no answer for why bank profits were a bad thing, falling back to the old trope of ‘‘social licence’’.