The Press TUESDAY, NOVEMBER 12, 1963. Labour And The Banks

Press, Volume CII, Issue 30286, 12 November 1963, Page 12

The Press TUESDAY, NOVEMBER 12, 1963. Labour And The Banks

The " possibility ” of a taxation system “ so devised “ as to ensure that trading “ banks will, over a period, “ like other lending insti- “ tutions, pay interest on “ their deposits and lend “ only to the extent that ** they have interest-bearing “ deposits to back their “ loans ” is discussed in the Labour Party election manifesto. Examination of the relevant figures shows that the “ possibility ” is an impossibility. At the end of September this year the trading banks’ loans (“ advances and discounts”) totalled £197 million, while their interest-bearing deposits totalled only £72 million. On the other hand, deposits of £256 million in current accounts yielded no interest. Owners of these funds are, of course, free to transfer them at any time to interest-bearing accounts. They prefer to lend this money to the banks “ free of interest ”, often for onlj’ a few days, for the convenience of being able to write cheques and having an account kept. Mr Nordmeyer now proposes that the trading banks should not only carry the cost of servicing these accounts (as at present), but also pay interest on the £256 million. At 3 per cent interest (“ like other lending insti- “ tutions ”), this would add nearly £8 million to the banks’ annual costs. Be-

cause three of the five trading banks operating in New Zealand do the greater part of their business elsewhere, it is not possible to relate this £8 million to the total profits from banking in New Zealand. It is possible, however. to estimate the effects of Labour’s proposal on the finances of New Zealand’s largest bank, which earns a very small proportion of its profits overseas. This is the Bank of New Zealand, owned by the State, which does more than 40 per cent of the country’s trading-bank business. At the end of September the bank’s advances and discounts totalled £B2 million, its interest-bearing deposits £l6 million, and its free deposits £lll million. To pay 3 per cent interest on £ 111 million would cost the bank more than £3 million a year. In its latest accounts the bank’s profit (before tax of £1.2 million) was shown at less than £1.7 million; allowing generously for the conservatism of bankers, the true profit could hardly have exceeded £2 million. No doubt figures for the other banks would show a similar result; and the banking system would disappear under the weight of such an impost. Labour’s taxation “ possibility ” should be recognised for what it is: an attempt to appease monetary fanatics.