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PM says banks not demonstrating 'social license' by repeatedly making very high profits, but does not have policy options; instead says banks 'should take a long hard look at themselves'

Public Policy / news
PM says banks not demonstrating 'social license' by repeatedly making very high profits, but does not have policy options; instead says banks 'should take a long hard look at themselves'

Prime Minister Jacinda Ardern is criticising banks for consistently producing very high profits at a time when others in the community are struggling.

She did not suggest a particular policy to reduce or tax bank profits, but said banks were not demonstrating "social license" and needed to 'engage in some self-reflection.'

Windfall taxes on bank profit margins that are rising because of higher official interest rates have been considered in Britain and Europe. Australia imposed an annual 'Major Bank Levy' of 0.06% of the liabilities of banks with more than A$100 billion of assets in mid 2017, which included Commonwealth Bank (the owner of ASB), ANZ Bank, Westpac, National Australia Bank (the owner of BNZ) and Macquarie Bank. That extra tax on banks was imposed by a conservative Liberal-National Federal Government in July 2017 and is expected to raise A$1.85b per year by 2024/25.

Ardern's comments follow calls from Green Finance Spokesperson Julie-Anne Genter last month for a windfall profits tax on large corporates that benefited from Government support and implied guarantees during the Government's Covid response.

Ardern was asked in her post-cabinet news conference late on Monday afternoon about Westpac NZ's record profit result earlier in the day, with the bank's annual net profit after tax reaching $1.047 billion.

Ardern said the banks generally had not demonstrated 'social license' by repeatedly making very high profits at a time their community was struggling.

"They all seek the same social license. They exist in the community. They know that this is a time where New Zealanders are facing increases in the cost of living like many other of our international counterparts," Ardern said.

"The question I would pose to them is they may be operating as other banks are, but are they demonstrating social license? Are they demonstrating commitment to the communities they are serving by taking profits such as those in these current times. That would be my question," she said.

Asked if they were demonstrating social license, she said: "No."

Ardern agreed the banks were complying with the law on taxes.

"They're continuing to operate within the parameters in the rules that are set, but that doesn't mean that necessarily it's giving them a social license that you would expect from banks who claim to be operating as members of the community and within the community," she said.

"Some have said things like windfall tax. That's actually a very different set of scenarios usually for those where it is being applied. Offshore, you will see in different scenarios they've applied it to, for instance, energy companies who have benefited from particular events," she said.

"The argument here is actually this is a very different set of circumstances. We've seen repeated significant profits being drawn by banks in New Zealand. So this is not what I would argue is a one-off. We've seen this consistently, them posting significant profits. I think there's questions need to be asked to management of these banks as to whether or not they're serving their communities well."

'I don't have a policy solution. Yet.'

Ardern said the Government did not have a policy to address the high profits and said any questions on specifics should be addressed to Finance Minister Grant Robertson. She would not say if the Government was considering naming banking as the next sector for a market study by the Commerce Commission.

"We don't have any particular policy that would have an impact on what we are seeing, but not everything that should change, will change, at the hands of government," she said.

"It is not unusual, of course, for companies or indeed other operators in our communities to assess whether or not what they're doing at any given time is the right way from a corporate responsibility perspective to be behaving. It doesn't always take government intervention for that kind of self reflection to occur.

"I'm simply being frank with you around my observations around what is occurring with bank profits. Do I have a current solution from government on that? The answer is no. But I do share a view as obviously someone that takes a perspective on the behalf of the welfare of all these Zealanders that what we see I don't think is justifiable.

"So I'm not coming here with a policy prescription, but I'm sharing a view. I don't currently have in front of me a Commerce Commission market study that can tell me exactly that level of detail that I can for, for instance, for the grocery sector.

"We know that from the Commerce Commission's work, that the grocery sector in New Zealand is taking excess profit of roughly a million dollars a day. Now I don't have that evidence base in front of me now for the [banking] sector.

"I'm sharing a frank view, but beyond that I don't have a policy prescription."

'There is something wrong with bank profits'

Asked if there was something wrong with the level of bank profits, she said: "In this environment, yes. I'm not speaking to every individual bank and the situation in this market. I'm giving a general response to a question that was asked without giving a policy prescription."

Asked if banks' job was simply to make the biggest possible profits for shareholders, she said: "Sure. But then on that basis at the same time, you see some banks promoting the fact that they are taking an environmentally responsible line by for instance, offering lower interest rates, the decarbonisation initiatives buying EV cars, insulating your home."

"They frequently make decisions that may be seen to be less about profit and more about social corporate responsibility. I'm just asking them to broaden the remit of consideration in that regard, The point I'm making is normal solutions to these questions don't solely come from government.

"Maybe banks themselves may look at their profits that they're posting in this current environment. And ask the question of whether or not in this current environment there is a way that they can support their customers through this period as well."

Asked if 'self reflection' would be enough to change their views, she said: "Obviously that self reflection has not bought change to date, but in this current environment where we are experiencing a significant cost of living issue for all New Zealanders, I feel a responsibility to call on all those who may have the ability to ease that pressure to consider how they may do so and I include the banks in that."

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74 Comments

Twilight Zone stuff. Didn't President Cindy want to keep house prices from falling? Aren't the commercial banks playing their part? What's next, a Ministry of House Prices? 

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38

Comrade Ardern desperately trying to pick up some brownie points. Voting for Ardern is like a Chicken voting for Colonel Sanders - it's just NOT a good idea.

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38

These Australian banks are far bigger & more important than our government. At least they think so and who exactly is going to contradict them meaningfully. So from PM Ardern once more, nothing but piping plaintive words. It’s become embarrassing hasn’t  it.  She has been spouting nothingness like this now for over five years. OK she fooled a lot of people for a lot of time but by now, she’s just fooling herself if she can’t see that the cindy floss is no longer appetising to the electorate. Needs to go and read Lincoln about trying to fool all the people all the time. This is so pitifully similar as to how she got “really cross” with Scott Morrison over the 501s.

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22

Yup. Chris Trotter nailed it again, as usual.

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3

I wonder if The Scrolls contain any revelations about the 2023 election.

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12

Yes. A Country gets the Government it deserves .  

Labour and National are 2 wings to the same bird.

 

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30

And voting for Captain Conehead will be the answer ?  Lol .
Hallelujah brother . 

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6

Captain Conehead will be a nice change of pace for those of us utterly fed up with the frenetic change for changes sake of Chopper Ardern ... 

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1

Captain Conehead and his deputy Airhead are perfect masters for the Natanic 

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0

Spot on!

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1

What's next, a Ministry of House Prices? 

A rebrand for the Reserve Bank, you think?

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2

I think they are taking a long hard look at themselves. And patting themselves on the back knowing Comrade Ardern won’t do anything about it. 

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25

I think they are taking a long hard look at themselves. And patting themselves on the back knowing Comrade Ardern won’t do anything about it. 

Of course she won't. The banks wear the trousers. 

Wonder what Kaumatua Orr makes of all this.  

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8

"I'm sorry Prime Minister, the position of 'person who offers nothing but tepid criticism of anything bank-related but their own performance' has been filled." 

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1

She did sweet FA with fuel and the supermarkets. Hot air and bullish!t

 

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37

“I’m going to count to three. One… twwwwooooo….”

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2

...two and a half....

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0

It’s the fault is successive governments:

a) ComCom was not required to take competition strongly enough into account and let ANZ buy The National Bank.

b) Kiwibank is tiny and doesn’t have economies of scale.  It will take a long time for it gain market share.  All the other banks outside the main ones are tiny players in NZ.

c) Banks are allowed recourse mortgages - this is a crime. In what other industry do you get to chase the debtor forever to repay the loan.  It distorts lending towards housing instead of business. House lending should be a level playing field with business lending.

d) perfect competition requires 6 to 7 players with equal market share. We are so far from that with 4 main banks with 80%+.  A full review of the banking sector is needed.

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19

Stop it . You are making far too much sense for most on this forum. 

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4

100% agree with point c) and would expand on this to consider the OBR where depositors money can be frozen and used to get a bank back on it's feet with only the remaining money returned to depositors.

Surely any money retained and used to stabilise a bank should be converted to equity in the bank.  That way a bank nears failure, OBR is initiated, existing shareholders get wiped out and depositors who take a haircut get handed the keys.

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2

The problem with this Government is it is all talk.  They have passed CoFI (albeit years too late) and have the FMA set to enforce it.  The FMA however needs to understand firstly how the market works in order to then work out how it should work in a fair and transparent manner.  The FMA then needs to employ the right resources to match up the "how it does work" with "how it should work" and go after unfair and transparent practice.  They probably don't know where to start as it is a big job and most likely you will see a mass exodus of those in the banking sector before CoFI is enforced.

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  The FMA however needs to understand firstly how the market works in order to then work out how it should work in a fair and transparent manner. 

The FMA doesn't give a rats about the great unwashed. Their key stakeholders are the banks and financial institutions. 

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It’s your bloody making! Sweet Jesus. 
 

Artificially low interest rates courtesy of Robertson and Orr leading to a massive investment in housing. Record borrowing and the FLP programme. No wonder profits are good.

and people still vote for this creature.

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42

That FLP money tap should have been turned off months ago.  With all that cheap money from the Reserve Bank, the banks make a profit and our dear leader objects.  You can't make this stuff up - a Monty Phython skit in the making.

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32

$16.397bn FLP repurchase agreement transactions undertaken between banks (total assets $708.187bn) and the RBNZ involving highly rated RMBS is hardly about to change the collective bank profit outcomes beyond a rounding error if commercial enterprises engaged in this process.

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3

It’s tragic. At least with the Greens, Act, Maori parties…..hell, even the KKK you know what they stand for. But the deceit, blatant lying and obfuscation with the current Government is beyond the pale. 

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16

If Ardern wishes to object I would suggest she highlights the contribution of taxpayers to bank profits via the FLP and suggests the banks bear an obligation to taxpayers in return. At least start getting taxpayers to see how much they are supporting bank profits.

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Problem is they don't understand what they don't understand. Scary to think that a lot outside of the Labour inner workings do, and they see they played no part in this. 

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Nek minnit Adern will be approving any/all means necessary with the RBNZ to bailout the banks when the housing ponzi implodes/is about to implode, just like in 2020. 

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10

Kiwibanks new owner is turning up the heat on the competition!

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6

According to the Reserve Bank, the new capital requirements mean banks will need to contribute $12 of their shareholders' money for every $100 of lending up from $8 now, with depositors and creditors providing the rest.

Banks should be forced to share their profits equitably with depositors and creditors, since all three parties underwrite lending.

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3

Whose money are they actually lending?  If someone sells a property for a profit, and they have mortgages in their name, the bank is entitled to take a cut of that if they so chose as a "right to set off".    

So why are the banks are allowed to have loans from the RBNZ, make a profit, and not have to pay down their loans from this profit?  The person still owes the bank, but less of the underwritten lending is exposed to OCR movements.  Instead they skim along the minimum capital ratios and cream the top off and leave the taxpayer heavily exposed.  

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Whose money are they actually lending?  No one's.

Banks don't take deposits and they never lend money. They are in the business of purchasing securities. When one gets a bank loan, the loan contract is a promissory note. The bank purchases that contract from the borrower. Now the bank owes the borrower money and it creates a record of the money it owes, which we call deposits - source.

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6

It makes you wonder why the smaller banks can’t compete. Who wouldn’t want a slice of that pie. Surely a newcomer could run a loss for a few years and build up some market share. Why don’t we see any newcomers seriously compete on interest rates?

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2

The cost and level of Regulation is outrageous 

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6

All businesses have that problem. So much work and expense not directly related to the nuts and bolts of running one's business. Getting worse by the month. Seems like a deliberate tactic to get rid of small NZ  owned businesses.

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0

Regulation is a malformed response to corporate misbehaviour and lack of responsibility. E.g. council regulation to try to protect ratepayers and taxpayers from the building industry's misbehaviour and lack of responsibility.

We must look at corporate law and the role and responsibilities of companies in society instead of to just more regulation. The idea that companies' only responsibility is shareholder returns is incorrect.

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1

You mean like TSB, Kiwibank, HSBC, Heartland, ICBC etc etc etc?

They exist, we're just too lazy to bother switching.

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1

I suppose it may be better if they all fail then JA can decide which ones to bail out,my guess All of them.

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1

What's Jacinda's salary again?  oh that's right it's $471,049 pa.  

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5

Seems like her issue is interest rate increases crushing household budgets. They’re increasing because of her governments out of control spending and intergenerational debt. Two years ago they were begging for banks to keep lending, they even rolled out free money with the Funding for Lending programme well after the housing market has started surging. Now she acts like the banks did something wrong by listening to government and doing exactly what she asked. If she wants inflation to come back down there’s nothing stopping her taking radical action like in 2020 and slashing government spending by $20 billion

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21

Cindy is oblivious and getting scared about the polls. Perhaps its dawning that she is the fa e of the problem. Stop giving away free money, and terminate FLP immediately. Banks clearly dont need any more help. Get inflation under control. 200 base points.

Yes the speculative to FOOP themselves and rush to the exits. 

Debt will become cancerous. Time to take the medicine...

 

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9

Holy shit, the banks are getting extra frowny faces thrown at them tonight. Their share prices will drop in the morning now. 

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7

... they'll be awake all night , tormented by their guilty consciences ... panicked by their social license obligations ...

Ah haaaa haaa haaaaaa  ... yeah , right !  .. Jacinda , babe , you're  a riot 😂 

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11

Acyually a  waste of Space...Mostly on Planes flying around burning fuel to help imptove "Climate Change"......NOT.!

A strange Worlld we live in.....the idgits are running  and flying us into "Global Warming"....

As is of course all those involved with "Do as I say...Not as I do".......Duh!.......Must go out and buy a Ute.....and get Fly Buys......When I buy over priced Diesel....at them Fueling Cost Stations.

A nutters World.....led by even bigger Nutters. Fuel Growth with even more debt.......Why Dont...cher Jacinda and her Robertson Lending Partner......Orr am I just '''''''MISTAK-EN"

Growl....

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3

Those wayward contradictions within themselves, explain exactly why this government is wilfully partnering the construction of wide bodied jet airport in the middle of good land in Central Otago whilst at the same time proclaiming loudly & proudly “climate emergency.” It’s not so much the left hand doesn’t know what the right hand is doing, this government doesn’t know what either of them are doing, or what they have done,  will do. Case in point again this article. The banks have simply  helped themselves, been gifted the cream on the top of the pail, while milk is fast dripping out the holes in the rusty bottom. But now the PM bleats the banks are just too much aren’t they. Old gift horse proverb in full play here.

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3

... just for fun , let's do a little maths : suppose the market capitalization of the ANZ is $ 200 billion ...  and just suppose that in an average year they get a 7 % profit on M/C via a loan book of $ 500 billion ... their PE ratio is 14 , around market average , their profit margin is 3 % ... all very reasonable ...

And , given their sheer size their total profit is $ 14 billion ... so , it's not a super profit  ... it's a good year ... and shareholders would expect a decent dividend ...

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0

To be fair capitalism as we know it and it's feudalism predecessor have never operated under a social licence or responsibility.  The free market will never solve the problems it creates - privatise the profits, socialise the costs.

Either society itself has to create this ethical 'value' and encourage the institutions to follow. Or the leaders of these institutions have to go against the grain of shareholder capitalism, develop this responsibilty in their firms and lead by example.

It almost reads like a Tui ad...

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3

The government could legislate to reduce the fiduciary responsibilities of companies to shareholders. That could end well...

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0

Why doesn't government properly fund IRD to collect all taxes owed I stead of trying to implement new taxes all the time?

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3

To a communist, excess profits mean anything over production costs. Anything else should belong to the state, where those wiser than the people can allocate them to their cronies. The proletariat aren't smart enough to knows what's best for them.

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6

That universal pension for communists is quite the fiscal cost eh.

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1

Lashing out at all and sundry now the votes are disappearing.

BUt as usual, no action.

  • Regulate lending rates to +/-0.25% of the OCR
  • Impose additional tax on profit over 100mil.
  • make all loans non-recourse.

For a Govt with a mandate they seem to think they can't control anything.

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9

Look, who is preaching !

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2

First time Comrade Arden has said anything remotely sensible!

Mind you, mismanagement thanks to her merry band of muppets deliberately fuelled masses of investment away from productive business directly....into....dolls houses!

On one hand, my own highly efficient dental clinic was forced shut for three months resulting in personal hell, huge debt and anarchy upon being allowed to re-open.

On the other, an investment property increased in value by 30% in 12 months!

Sell the property, bank the tax free gains, then be forced out of the business adding to the health deficit in an already unattractive environment and BOOM....

Of course tut tut you naughty banks and you naughty supermarkets. 

I used to look at Labour as well intended but reasonably harmless bunch of loud mouths! Not anymore.......................................

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9

Dear esteemed PM,

You could, I dunno, use your giant majority in parliament to pass some legislation against the banks (you know, the same majority you'll be using to ram 3 Waters through, for example). You might even salvage your seemingly doomed political career in the process.

Thanks,
A voter

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9

... at the same time as the esteemed leader , hallowed be thy name , eviscerates the banks for " excessive profits " her finance minister is spending excessive taxes collected from workers , via tax bracket  creep ... 

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7

Talk is cheap. Action is important and i do not see any. 

Lip Service at the best and that's all current day politicians and bureaucracts do. 

 

 

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0

Westpac just announced a 64 cent dividend, still well short of the 80 cents they paid pre-pandemic.

The excess profit didn't go to the shareholders.

A lot of bitter and twisted people here. Did you just have your mortgage payments increased...maybe realestate  agents.

 

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3

Ohhhh, seems to me we have a lot more grumpy posters, now property prices are tending down.

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5

Lets not have another waste of money autopsy/enquiry on how we got here...it not rocket science . Can we get Aucklanders to plant a pine tree in their backyard to help offset global carbon emissions and help the farmers retain some of their productive land. Social contract.... Id like too also see the electoral act changed so that list members cannot take ministerial positions...lol

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"...When regulation renders house prices absurdly expensive, you need entities that will facilitate very large amounts of debt. Big banks require lots of capital, and on lots of capital lots of money can and should be made. But if the left is so convinced there is money for jam on offer there is a readily accessible market response: buy more shares with their own savings.

Instead, from the party that wants to make us all poorer, force people to live in expensive townhouses, and do all they can to discourage cars and planes (oh, and free speech too), yesterday we got a proposal that there should be an “excess profits tax”.

...Except that whether one uses their AES measure, or national accounts measures there isn’t anything very remarkable about profits in recent years – except of course that there is lots of inflation, but even then as that final chart shows returns to labour in total have been growing at about the same rate of returns to providers of other resources."

https://croakingcassandra.com/2022/10/31/profits/

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1

Kiwibank only made $131 million to June 2022, why dont kiwis switch to keep profit here?

 

https://www.kiwibank.co.nz/about-us/news-and-updates/media-releases/202….

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4

WTF!….  Stalinda is telling the banks off for being greedy!?!!

THe Commandant should look at her governments fiscal GREED & WASTE & DEBT.

TAXES HAVE INCREASED

INFLATION AND COL ARE UP

BILLIONS HAVE BEEN TAKEN IN TAXES AND THEN WASTED 

Under her leadership she should be looking at her own CONSCIOUS MORAL ABILITY to be fairer with the billions she is in charge of .. and sort her own fiscal disaster out....  And stop fat boy " Robbing Son" from dictating to the RB

 

 

 

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8

... hmmm ... I'm sensing a vibe here ... not a fan of the PM & her handling of the economy ? ....

Into a MIQ facility for you me laddo , until you memorise the little Red Book and sing the praises of our esteemed leader , hallowed be her name !

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4

Young folks, help your elders navigate Facebook safely if you see them starting to look like this.

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2

Who cares what she has to say about anything. The only reason she remains PM is because the election hasn’t happened yet.

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2

If people want a non-profit bank - well there is one! Cooperative literally gives you, the customer, any profit.

Yet people do not make the change en masse. Truly baffling.

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1

Is it a bit rich for the Prime minister to criticise the banks about large profits, when the government is collecting the most PAYE it ever has?  

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Which banks is the biggest thief of your money and wastes trillons on crap?...

 

The Bank of the people... The government!!

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2

Compared to Jacinda's 'statement of concern', a wet bus ticket would seem like a fearsome weapon. What a farce.

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Oh for a decent opposition ----  FLP anyone --  JA is directly responsible for some of these monster profits and this program should have been stopped MONTHS ago if it ever needed starting in the first place  -- hell thats direct taxpayer money inflating their bloody profits !!!      

 

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0

Is the RBNZ Governor allowed to own Bank shares? Does he own any?

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