The Government’s Budget 2026 includes a new prudential levy on the financial sector that will raise around 209 million dollars over four years, with Finance Minister Nicola Willis telling banks they should absorb the cost rather than pass it on to customers, and Deputy Prime Minister David Seymour openly disagreeing within hours of the announcement.
The levy will apply to 27 registered banks, 14 licensed non-bank deposit takers, 81 licensed insurers and five designated financial market infrastructure providers, with the money used to cover the Reserve Bank’s prudential supervision functions. Ms Willis described the cost as modest and argued it would help shore up the country’s financial plumbing during a more unstable period in the global economy.
“In a more unstable world, it’s important we strengthen the financial system, so it keeps working for Kiwis when times get tough,” she said in the Beehive announcement.
The annual amounts collected start at 68.1 million dollars in the 2027/28 year, rising to 69.5 million in 2028/29 and 70.9 million in 2029/30. Cash will flow through the Reserve Bank and then return to the government as increased dividend payments, mirroring the funding model already used by the Financial Markets Authority and the Commerce Commission. Australia, Canada and the United Kingdom all run similar industry-funded models, and the Reserve Bank has wanted long-term funding security since the supervision regime was overhauled.
The political flashpoint, though, has not been the levy itself. It has been who ends up paying for it.
Ms Willis told reporters she expected the big four banks in particular to wear the cost rather than push it to mortgage holders or deposit accounts. “I would like to send them a very clear message: They are some of the most profitable banks in the world. Other countries around the world have these levies and you haven’t seen it being passed through,” she said. She went further when pushed on what would happen if banks did try to pass costs on. “I would be extremely disappointed if at this time, New Zealand banks chose to do that to their customers,” she told interest.co.nz.
Within hours, Deputy Prime Minister and ACT leader David Seymour had broken with his Finance Minister in public. “Let’s be honest, banks only have one source of money. That’s their customers. So let’s not tell the easy lie that we would be taxing the banks, you’d be taxing their customers,” he told reporters. He added there was “no question” customers would end up paying. The disagreement put a rare coalition seam on display the day after the Budget was delivered, with Prime Minister Christopher Luxon backing Ms Willis’s line and saying the banks had “plenty of capacity to absorb” the cost.
Labour finance spokesperson Barbara Edmonds was almost word-for-word with Ms Willis on cost pass-through, telling media she would be watching the banks carefully. “My disappointment however, will be if those banks start to pass those onto customers, given the higher profits they have. So we’ll be watching that very carefully,” she said.
The big four banks reported combined profits of more than 7 billion dollars in the most recent financial year, so the headline figure of around 70 million dollars annually is a rounding error against their bottom line. Officials say the total levy take is less than 1 per cent of the big four’s combined profits. That helps explain why the New Zealand Banking Association response was so cautious. Chief executive Roger Beaumont said members “understand the need for appropriate funding for regulators” and would “engage constructively with the Reserve Bank in the consultation process.” The Insurance Council of New Zealand struck a near identical tone, saying it looked forward to engaging “to ensure the approach is effective and proportionate.”
Consumer NZ chief executive Jon Duffy gave the levy qualified support but flagged the same risk Mr Seymour did. “It seems sensible to put these costs on a highly profitable industry,” he told the NZ Herald. “There is potential for these costs to be passed through to consumers, but it’s really too early to tell.”
For ordinary customers the practical question is whether mortgage rates, transactional account fees, or insurance premiums tick up by a few dollars a year. Spread across millions of customers, even a small adjustment by each major bank could comfortably recover its share of the levy without leaving a fingerprint on any single account. That is precisely the risk Consumer NZ and Mr Seymour are pointing at. Smaller banks and non-bank deposit takers have less profit to absorb the hit, so observers say they are more likely to lean on customers to recover the cost.
Consultation with the sector starts after Budget 2026, with Cabinet decisions expected in early 2027 and implementation pencilled in for mid-2027. That gives the Reserve Bank, the industry and regulators close to a year to argue over how the levy is structured. The bigger argument, about whether New Zealand banks ought to be more profitable than almost anywhere else in the developed world, and whether the Government has the political will to do anything about it, is unlikely to be resolved by a 70 million dollar levy. For a full breakdown of who pays what, see interest.co.nz.
What do you think? Are New Zealand banks profitable enough to absorb a new prudential levy, or will it end up being paid by mortgage holders and policyholders? Drop your thoughts in the comments below.
This article was written by AI, briefed to report the facts, hopefully without some of the bias people bring to the job π
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