New Zealand will return to surplus sooner than previously expected, new Treasury forecasts released at today's Budget show – as the Government reveals a new bank profits levy and other tax measures.
There are Budget 2026 changes, including for fringe benefit taxed vehicles, a new levy on banks and insurers, and an overhaul of charity donation rules.
Budget 2026: Key announcements, winners and trade-offs explained, watch on TVNZ+
Councils would also receive more money for taking on more housing within their borders.
The forecasted return to surplus in the 2028/29 financial year — under Finance Minister Nicola Willis' preferred OBEGALx measure — leaves the books in a better shape than many had expected, including the last update in Treasury's half-year update in December.
Willis used the forecasted improvement to highlight what she termed "disciplined economic management and a government taking its responsibilities seriously".
"The $2.6 billion OBEGALx surplus forecast in 2028/29 would be the first surplus in a decade, and is a big improvement on the $900 million deficit forecast in December’s half year update," she said in a Budget media release.
Watch: Budget Q+A Special on TVNZ+
"Treasury also expects net core Crown debt to start reducing as a percentage of GDP in 2028/29, with this turning point occurring a year earlier than previously forecast.
"This improvement in the country’s books is reflected in the Government’s borrowing programme.
"NZ Debt Management has lowered its forecast issuance of government bonds by $6 billion over the next four years, the first downward revision to the bond programme since 2021.
"That is $6 billion New Zealand will not have to borrow, and not have to pay interest on."
Treasury’s central forecast assumes the impact of the fuel crisis will be temporary, based on market pricing.
But Willis said that "while global uncertainty remains, even Treasury’s downside scenario shows OBEGALx returning to surplus in 2028/29".
The measure being used by Willis and the coalition Government – OBEGALx – is a measure that excludes ACC. Under the traditional OBEGAL measure, the Government will still return to surplus, but only by the final year of the forecast period.
"The gap between OBEGAL and OBEGALx stays relatively stable across the forecast period, reflecting the difference between ACC revenue and expenses remaining broadly unchanged," according to the Budget Economic and Fiscal Update.
New bank profits levy announced
At today's Budget, Willis also announced a new prudential levy on banks, non-bank deposit takers, insurers, and other financial market participants.
The revenue from the new levy will be less than 1% of the total profits of the big four banks alone, according to the minister.
"This mirrors the approach taken by the Financial Markets Authority and the Commerce Commission which fund much of their activity through levies on financial market participants.
"It is also consistent with international practice in countries like Australia, Canada and the UK," Willis said in a media release today. The money will be used to "help cover the costs of services provided by the Reserve Bank".
“The prudential levy is estimated to recover around $209 million over the next four years. The levy will be paid to the Reserve Bank, with the revenue returned to the Government through an increased dividend," the Finance Minister said.
In other changes, the Budget also simplifies fringe benefit tax rules for private motor vehicles by removing detailed logbook requirements, said Revenue Minister Simon Watts.
"Changes in this area will simplify the rules by taking a ‘close enough is good enough’ approach. This will significantly reduce compliance costs for businesses."
Charities untaxed net income to 10x
Watts also announced big changes to tax rules for charities and not-for-profits.
He said the Government was "introducing a range of measures to ensure the charitable and not-for-profit sector is strong, fair, and has integrity".
These included increasing the amount of net income a not-for-profit can earn without paying tax from $1000 to $10,000 while also capping donations eligible for a tax credit.
Watts framed this as "ensuring the donation tax credit scheme remains financially sustainable by capping eligible donations at $100,000 per year".
"This will also limit tax planning risks that can arise when a donor makes a gift to a charity they control themselves."
Other changes include "allowing donors to receive their donation tax credit refunds throughout the year in certain circumstances, rather than waiting until the end of the tax year." Additionally, donors would be allowed "to gift their donation tax credit to a charity".
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