BANKING—A FOOTNOTE HOW MUCH OF COMPANY PROFITS LEAVE N.Z.?

Press, Volume CIII, Issue 30530, 27 August 1964, Page 12

BANKING—A FOOTNOTE HOW MUCH OF COMPANY PROFITS LEAVE N.Z.?

IBv

N. L. Macbethl

The profits earned from banking in New Zealand were estimated in a series of articles on this page (on June 23, 24, and 25 this year) at £1,508,900 to £1,577,000. Of this total, only the Bank of New Zealand’s £591,000 —37.1 per cent to 38-per cent of the total—accrued to shareholders in a New Zealand-domiciled bank.

The remainder accrued to shareholders in overseasdomiciled banks. It could therefore be claimed that 62 per cent to 63 per cent of banking profits in New Zealand accrue to overseas' companies: and it.is on this basis that the profits earned from banking are officially classified as accruing to New Zealand and overseas interests respectively. However, many New Zealand residents hold shares in overseas-domiciled banks. • Details of these' .shareholdings were published on June 25. On the arbitrary assumption that the New Zealand shareholdings can be related to the New Zealand business of these banks, the proportion of profits from banking in New Zealand ultimately accruing to New Zealand residents is found to be 77 per cent or 78 per cent, not 37 per cent or 38 per cent. The proportion accruing to overseas shareholders is accordingly reduced to 22 per cent or 23 per cent. Significance of Domicile The distinction between .the domicile of a bank and the domicile of its shareholders is obviously significant for balance - of - payments purposes. The comments of the Government Statistician (Mr J. V. T. Baker) on this portion of the writer’s banking

articles were invited, and have since been discussed in correspondence and in person with him. Mr Baker said, in February this year, that “qne-third' of company incomes earned in New Zealand accrues to overseas shareholders.” This statement is based on a comparision between the balance of payments debit item, “direct private investment” and the National Income estimate of company income (after tax). Mr Baker's calculations allow for overseas shareholdings in New Zealand companies, but do not allow for New Zealand shareholdings in overseas companies trading in New Zealand, very few of which are known, it is basically this distinction which accounts for the drop from 62 per cent or 63 per cent to 22 per cent or 23 per cent mentioned above. Mr Baker’s more accurate information on individual banks’ profits might lead to different percentages —but surely not to different conclusions—from these, for anyone outside banking or official circles can make only rough estimates.

The pattern of ownership and control of banking in New Zealand is unusual, if not unique, in this country. The sole New Zealand-domiciled bank has no overseas shareholders, while two of the overseas-domiciled banks have an exceptionally high proportion of New Zealand shareholdings. Even so, Mr Baker's “one-third” of company income accruing to overseas shareholders might be substantially reduced if his calculations were modified to allow for New Zealand shareholdings in all overseasdomiciled companies trading here. For many purposes, however, it is more relevant to emphasise that a significant proportion of company profits earrted in New Zealand goes abroad, much of it never to return. For a country as short of capital as New Zealand, the approoriate policy would be to encourage repatriation, not expatriation, of capital. An unrealistic exchange rate, noremittance import licences, and exchange controls are inconsistent with this objective.