The public has every right to be peeved

Never mind Lotto's $37 million. What would you do with $2.4 billion? If you were John Key you could build an awesome cycleway with that kind of windfall.

Or better yet, you could pay down some national debt and get the ratings agencies off our backs. Or you could keep up contributions to the NZ Super Fund for another year and still have change left over to build a hospital or do some of that other good stuff Governments sometimes remember to do with our hard-earned tax dollars.

That $2.4 billion is what the IRD says is owed to us by the big four Australian banks. That is a hell of a bill, so it's not surprising the banks are disputing it. But if what the IRD alleges is true, then the public have a right to feel peeved with the banks.

When the IRD first sent the bill to the banks in 2007 the Government was sitting on a rapidly growing budget surplus of about $7 billion. The story hardly caused a ripple outside the business media. But in the harsh economic winter of 2009, $2.4 billion looks like a lot of unpaid tax indeed.

The IRD alleges the banks undertook a number of complex financial transactions which were specifically designed to avoid paying tax. The banks say they don't owe that money and they were following the tax rules as they stood at the time.

But in the case of the BNZ and $654 million (including interest), the High Court agrees with the IRD.

In Thursday's decision, Justice John Wild said that apart from the tax benefits, "these transactions had no commercial rationale, logic or purpose for the BNZ".

That's outrageous behaviour and it really puts the debate about whether the banks are being stingy about floating interest rates in the shade.

Okay, so there is also a long way to go before the Government can bank on a cent of this money coming into its coffers.

The BNZ will no doubt head to the Court of Appeal and maybe even the Supreme Court. It may also be that an out-of-court settlement is reached along the way. Deutsche Bank has apparently already settled with the IRD and was perhaps wise to do so before the first case got this far.

Meanwhile, tax experts warn that we can't assume that the other cases pending - and the Westpac case already under way in Auckland - will go the same way.

The financial transactions used to offset tax in New Zealand were all different and the other banks may yet successfully argue that there were valid commercial reasons why they were undertaken.

It may also be that other judges interpret the rules around tax avoidance differently. They may put more stock in adherence to the letter of the law and less in Section BG1 of the Income Tax Act, which says transactions are void if they are deemed to be tax avoidance.

But on that point it does seem Justice Wild has set a precedent, applying the provision more broadly than in the past. That may be good news for New Zealand's finances.

The path to getting a resolution will be long and slow. It will outlast this recession and probably the whole economic cycle. But if - as Bill English said this week - we are looking at a "demoralising trudge" of more than 10 years to right the Government books, then this is a fight worth pursuing.

You'd have to say the odds look better than those of winning Big Wednesday.