Banks' tax dodging tantamount to theft

Like many people reading this blog, I pay my taxes as I earn my salary (PAYE). There's no escape and I rarely get much of a refund. I haven't set up a fancy family trust or Loss Attributing Qualifying Company (LAQC).

So I get very grumpy when I hear about people who avoid tax or "arrange their affairs" to ensure they pay less than their fair share of tax.

Tax dodging may be a national sport, but I don't think it's anything to be jealous about or to admire. I think this behaviour is the same as theft.

It effectively forces me to pay more than my fair share for public services that everyone else, including the tax dodgers, benefit from. It is not a victimless crime.

Every dollar not paid by a tax dodger means there's one less dollar for the schools or hospitals or roads or the multitude of other services our taxes pay for. At present it actually means one more dollar in debt and the interest on that debt for years to come.

So the precedent-setting High Court decision finding BNZ avoided paying $416 million in back taxes made me grumpy. It should have made a lot more people grumpy, not just because this is a large amount of money. BNZ was one of four banks that systematically reduced their tax bills from 1998 to 2005 by using structured finance deals. Reserve Bank figures show banks paid an effective tax rate of 28 per cent on average through those years when the corporate tax rate was 33 per cent. The table shows that banks underpaid their taxes by $1.184 billion. Once the underpayment penalty interest rates are factored in, the combined banks owe the Government and people of New Zealand about $2.25 billion.

Now I'm not just grumpy. I'm furious. That is 10 hospitals or 100 schools or the entire budget deficit forecast for the year just finished. If I stole that much money I would be public enemy number one and rightly so.

Now that the High Court has ruled that they have avoided tax, there is no excuse for the banks not to pay up now. BNZ is considering an appeal and the sheer size of the prize (of avoiding having to pay altogether) will no doubt make the business case for an appeal very appealing.

Tax lawyers will be preparing their orders to car dealerships selling Porsches.

But the banks are taking a big risk if they insist on appealing this decision to the Supreme Court and dragging it out.

First is the financial risk. Every year this drags on is another $200 million and growing in interest owed on the unpaid taxes. Compound interest works a treat for the IRD.

Second is the huge reputational risk. Banks are already being accused by the Reserve Bank of overcharging for floating mortgage rates. Businesses are accusing them of withdrawing lending and charging high rates just when businesses can least afford it, forcing them to sack workers. Public anger is growing.

They also have no excuses. Standard and Poor's and Moody's have said their credit ratings are not in danger if they have to pay their back taxes. ANZ and BNZ's parent NAB has raised more than A$4 billion ($4.96 billion) from its shareholders in the past couple of weeks. The Australian banks can afford it. It's time ASB, ANZ, BNZ, National and Westpac paid their taxes. Just like the rest of us.