Finance Minister Nicola Willis says she would be "extremely surprised" if banks passed a new $200 million prudential levy announced in Budget 2026 onto their customers, though Cabinet has not yet decided what action it would take if they did.
The levy on banks, non-bank deposit takers, insurers and other financial market participants that would be used to pay for their regulation was one of the few revenue-raising measures presented in Willis' third and final Budget of the parliamentary term.
She was asked repeatedly on Q+A with Jack Tame on Sunday what regulatory tools the Government had to prevent banks from absorbing that cost through higher customer charges.
"We haven't made that decision as a cabinet," she said.
It would be "extremely unwise" for banks to pass the levy on, she added, arguing it amounted to less than 1% of bank profits and brought New Zealand into line with other countries.
"In proportion to their profits, this prudential levy is tiny. They make extremely good margins. Those margins seem to survive whether the economy is going up or it's going down."
Pressed on specific tools she had to stop them, Willis said consumer competition would be the primary check.
"If they see their bank putting on some sort of extra charge to reflect a tiny, tiny prudential levy, then goodness me, they should shop around."
In a wide-ranging Q+A interview on Budget 2026, the Finance Minister discussed the Government's borrowing record, a three-year slip in the surplus target, child poverty, and whether New Zealand will meet its Paris climate commitments. (Source: Q and A)
She added the Reserve Bank would monitor pricing, and that the Government could be transparent about what it was seeing in the market.
Asked what would happen if all banks passed the levy on simultaneously, Willis indicated further action on bank taxation was possible but gave no specifics.
"I'm looking very carefully at the taxation of banks as a whole."
ACT leader David Seymour has criticised the levy, arguing it was inevitable the cost would be passed onto consumers as they were the sole source of revenue for the banks.
"So let’s not tell the easy lie that we would be taxing the banks, you’d be taxing their customers."
Willis rejected that framing, saying the levy was a fairness measure in that financial institutions should pay directly for the regulation of their sector rather than having that cost fall on ordinary taxpayers.
"Everyone in New Zealand, through their general taxation, is paying for the regulatory services provided to banks," she said.
"Let's apply a fair principle."
Fiscal record
Willis also faced questions about the Government's fiscal record, including the much-touted return to surplus that was the centrepiece of Budget 2026.
The forecast return to surplus in the 2028/29 financial year — under Willis' preferred OBEGALx measure — was earlier than some had anticipated following December's half-year update.
The National-led Government had campaigned in the 2023 election on a return to surplus by 2026-27.
Willis blamed Treasury's pre-election forecasts for the discrepancy, describing them as "wildly optimistic," though she was challenged on the inconsistency of criticising those forecasts while citing the same institution's new surplus projection as evidence the government was on track.
"In the absence of the approach our Government has taken and the decisions that we took in this year's budget, that surplus would not be returning in the forecast period," she said.
"It would be in the never never."
On borrowing, Willis defended a track that shows the government averaging more than $17 billion a year in gross debt — higher than the $15 billion annual average under the Ardern government.
The higher figure was primarily attributed to a $9 billion annual interest bill, she said.
"That's more than four times the discretionary spending I'm doing in each Budget. That's because I'm having to pay off the debt mountain left to us by the last lot."
Net core crown debt is forecast to increase $91 billion over the current projection period.
Willis said debt would stop growing by 2027-28 and begin falling once the books returned to surplus.
"I want New Zealanders to understand is our books are in deep, deep deficit, and we need to be correcting that, and the decisions we've taken in this budget need to be seen in that context."
Q+A with Jack Tame is made with the support of NZ on Air
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