Banks: too big to fail, too rich not to socially contribute

The combination of being too big to fail, community underwriting and large profits make it economically and socially imperative for the government to treat banks like individuals and subject them to progressive taxation.

Even the most fanatical market economist would find something profoundly uneasy about an individual who earns $311,000 a week (based on last year's remuneration) comparing a $3.34 billion half year corporate profit with the cost of a cup of coffee.

CBA boss Ralph Norris came close to justifying his $16 million dollar pay packet by trying to normalise his banks gangster profit on the basis that profit measured on the basis of the banks return on assets is only about 1 per cent.

Norris stated that a way to conceptualise the profit was to imagine that the assets of the bank were $900 - not nearly $900 billion – and on that basis a $3.34 return was modest.

Like most things in life, relativities as analogies are poor guides. Objectivity and absolutes are everything. The only bottom line with the CBA is that it is on track this year to make a profit of over $6 billion.

Last year the four banks combined made of $21 billion profit. That equates to $1,000 from every Australian. Whichever light you hold that up to, the sums are incontestably big.

Norris' return on assets point of reference is inapposite in relation to entities whose total assets are nearly the size of Australian's annual economy – there is only so much moss you can scrape from a stone.

Having said that, the recent venting that has been projected at the banks for their mega profits, especially following the November out-of-cycle rate rises, is misplaced. Banks are not to be blamed for their largesse.

Talk of 'corporate social responsibility' over the past decade has been shown to be nonsense. And so it should be. Corporations exist to make money for their owners (the shareholders) and so long as they comply with the law and pay their tax they have discharged their responsibility to the community.

There are other institutions in the community that individuals should be looking to in order to fulfil basic human and social needs. They start and end with governments, churches, families and charities.

Any dereliction relating to bank profits rests with one entity: the government. It's the government's role to raise money by imposing taxes to pay for essential services and infrastructure.

There are lots of theories doing the rounds of economics and philosophy departments on how government's should raise tax. But there is near universal consensus that ability to pay must be a cornerstone of taxation policy.