Excessive Profits?

Reflections on the Finance and Expenditure and Primary Production Committee of Parliament Hearings

Quite by accident I heard a news story on the radio about the appearance of Antonia Watson, the CEO of ANZ Bank New Zealand before the Finance and Expenditure and Primary Production Committee of Parliament.

What interested me was the tone of the questioning. Clearly it was designed to put Ms. Watson on the defensive. It failed.

The tone of the questioning was a manifestation of the tall poppy syndrome together with the politics of envy.

One line attacked the profitability of the bank. In a naïve question National Party MP Catherine Wedd asked Watson how she could justify pulling in a $2 billion profit when customers, farmers, and homeowners were doing it “really, really tough”.

That question completely ignores the fact for a start that banks are in a different line of business from farmers but implicit within the question firstly was that the bank had made too much profit and secondly and associated with that a business should not be making too much profit when other sectors of the community were not so successful.

The kicker came from the chairman of the committee Stuart Smith who brought up Watson’s recent public support for a possible extension of capital gains tax, and suggested a windfall tax on banks instead. He asked:

“I noticed you've had some comments on alternative revenue streams for the Government … did you consider a corporation tax surcharge on large bank profits, as is the case in the UK?”

What an extraordinary suggestion. A tax on excessive profits?

It was clear that Ms. Watson had been subjected to some aggressive questioning. She was challenged about the $2 billion profit made by the bank and it weas suggested that it was very large.

Ms. Watson countered that the figure reflected cost of capital and what was attractive for an investor to continue with an investment in the bank. Mr Smith said:

“I don't accept that answer. Respectfully, I don't. Reading the Commerce Commission's report, they are very clear that they push back on that sort of argument.”

“They cut, sliced and diced the analysis in several ways to take out those banks that had had issues in the financial crisis. So, I don't accept that respectfully, I don't accept that.”

Ms Watson riposted saying

“I don't accept us being compared to banks that trade below book value and in some cases, make returns below New Zealand government bond rates.”

The questioning raised some issues in my mind. Is there such a thing as excessive profit or too much profit. Should businesses trim their profitability to fit in with some cookie-cutter outline of what is enough.

I reflected on this in my review of Bob Calkin’s book “The Lucky Generation”. Calkin cited Thomas Piketty in his discussion about inequality. Piketty argues for progressive wealth and income taxes which need to be implemented globally. Calkin is critical of what he describes as obscene wealth - a frequent term deployed by the Left.

I expressed some fascination with those who use the term “obscene wealth”. It occupies the same space on the spectrum as “excessive profits”  or “too successful” and of course the answer is to fleece the recipient of a portion of the “obscene wealth” or “excessive profit” for no other reason than that they – the successful wealthy – have it and others do not.

I posed the question in the review at what stage does “ordinary” wealth transition to “too much wealth” and ultimately to “obscene wealth”. Similarly from the perspective of a business and of a bank when does a profit become an excessive profit.

Many view the pursuit of profit as inherently selfish or damaging to society. However, there is nothing wrong with making a profit in business, as long as it is done ethically and responsibly. In fact, profitability is not only necessary for the survival of businesses but also beneficial to society at large.

Profit is the lifeblood of any business. It serves as a clear indicator that a company is providing goods or services that people need or want. Without profit, businesses cannot sustain themselves, reinvest in their operations, or grow. If a business consistently operates at a loss, it suggests inefficiencies, poor decision-making, or a lack of value creation. In this sense, profit is a sign that a business is doing something right.

Moreover, profit is not just about numbers—it’s about impact. When a business is profitable, it means it has successfully met market demand, managed resources efficiently, and created value for its customers. Without profit, a company would eventually cease to exist, leaving its customers, employees, and stakeholders without its goods, services, and benefits.

When companies are profitable, they can invest in research and development (R&D), improving products or services, and staying competitive in a rapidly changing market.

Consider how many groundbreaking innovations—such as smartphones, electric vehicles, or life-saving medications—have been brought to market because businesses were able to reinvest their profits into R&D.

Profitability also allows businesses to scale, reaching more customers and making a larger impact. Growth benefits not only the business itself but also the wider economy through job creation and increased market offerings.

Profitable businesses are key drivers of economic growth. When companies thrive, they hire more employees, pay taxes, and contribute to the overall health of the economy. Small businesses, for instance, account for a large share of employment in many economies, and their ability to stay profitable ensures job stability for millions of people.

Furthermore, businesses that generate profit are more likely to engage in corporate social responsibility (CSR) initiatives, such as philanthropy, sustainability efforts, and community investments. By being profitable, businesses have the financial flexibility to support causes that improve societal welfare.

Entrepreneurs take significant risks to start and grow businesses. The potential for profit is the incentive that motivates individuals to invest their time, energy, and capital into building new ventures. Without the prospect of profit, far fewer people would take on the uncertainty and challenges of entrepreneurship.

This risk-taking, however, benefits society in multiple ways. Entrepreneurs introduce new products, services, and technologies that enhance people's lives. They also disrupt industries, create competition, and drive overall market efficiency. In this way, the pursuit of profit fuels progress and innovation across sectors.

Contrary to popular belief, profitability and social responsibility are not mutually exclusive. Many companies today are proof that businesses can prioritize both profit and purpose. Social enterprises, for example, are mission-driven businesses that use profits to advance social causes, from combating climate change to addressing poverty.

In my review of Bob Calkin’s book I made passing reference to how Ayn Rand (author of “The Fountainhead” and “Atlas Shrugged”) might deal with an egregious term such as “obscene wealth”.

Ayn Rand, was a staunch advocate of individualism and capitalism. She would have vigorously defended a business criticized for making "too much profit." From her perspective, the criticism would likely reflect a misunderstanding of the moral and practical foundations of capitalism.

Rand’s approach to profit is that it is the result of a business’s ability to create value and satisfy the needs of its customers through voluntary trade. In her view, profit is not something to be ashamed of but something to be celebrated, as it reflects the business’s success in providing goods or services that others voluntarily choose to purchase.

In "Atlas Shrugged," Rand emphasizes that money is the result of productivity and that to denounce profit is to denounce the very act of producing value. A business that earns high profits has done so by excelling in its ability to meet demand, innovate, and operate efficiently—qualities that Rand viewed as virtuous.

Rand argued not only from an economic perspective but a moral one. A business has a moral right to the profits it earns because those profits are the result of the owners' and workers’ intellectual and physical labor. For Rand, wealth creation is the just reward for the rational effort and ingenuity that a business brings to the market.

No one has the moral authority to declare how much profit is "too much." If a company is criticized for making "too much profit," Rand would ask, as do I,  by whose standard? In Rand’s view, the only just and objective standard is whether the profits were earned through free and voluntary exchanges, not by coercion or fraud. As long as a business operates within the bounds of voluntary trade, it should be free to make as much profit as it can without guilt or societal condemnation.

So what of the wealth tax – the excess profit tax – the windfall tax. Rand was critical of altruism enforced by the State where individuals are expected to sacrifice their own interests for the sake of others. She interprets criticisms of "excessive" profit as being rooted in envy and the mistaken belief that one person’s gain is another’s loss.

In "The Virtue of Selfishness," Rand makes the case that productive achievement is the highest moral purpose, and a business that earns large profits should be admired for its success, not demonized.

For Rand, condemning a business for its profitability is an expression of resentment from those who lack the ability or the will to achieve the same success. She would see this criticism as an unjust attack on those who are the "movers" of the world—those who drive progress and prosperity.

Rand argued that the free market, rather than public opinion or government intervention, is the proper mechanism for regulating profits. In a capitalist system, businesses compete with each other to provide better products and services at lower costs. This competition naturally limits how much profit a business can make because if a company charges too much or delivers poor value, customers will turn to competitors.

Thus the amount of profit a business makes is determined by its ability to innovate, meet customer needs, and manage resources more effectively than its competitors. It is not the role of society nor of the government to limit or redistribute those profits. To do so would be to undermine the very principles of freedom and meritocracy that allow businesses to succeed in the first place.

Capitalism, according to Rand is a system in which businesses are free to pursue profit—is the only moral social system because it respects individual rights and the freedom to pursue one’s own happiness. Profit, in this context, is not just an economic necessity but a driver of human flourishing. It incentivizes innovation, rewards hard work, and fuels the creation of wealth that benefits society as a whole.

Those who criticize profit are ultimately advocating for the stifling of human achievement and progress. By attacking profitable businesses, critics are attacking the very engine of prosperity and the individual freedom that makes it possible.

Perhaps we should keep this in mind when the tall poppy syndrome and the politics of envy emerge from the swamp to criticize and condemn successful, profitable businesses.