Finance Minister Defends New $209 Million Prudential Levy, Dismissing Pass-Through Concerns

The New Zealand Government is defending its newly announced NZ$209 million prudential levy on financial institutions, introduced as a core component of Budget 2026 on May 28, 2026. Finance Minister Nicola Willis has dismissed concerns that the financial sector will pass the regulatory cost onto everyday consumers, expressing strong confidence that the country's highly profitable banking institutions will absorb the charge. This policy shift is designed to recover the operational costs incurred by the Reserve Bank of New Zealand (RBNZ) for the prudential regulation and supervision of deposit takers, insurers, and financial market infrastructure providers. By establishing this levy, the government aims to shift the financial burden of industry regulation away from general taxpayers, aligning New Zealand with established international frameworks in Australia, Canada, and the United Kingdom.

Industry Profitability and Pass-Through Concerns

A primary point of discussion surrounding the new levy is whether banks will attempt to offset the cost by increasing consumer fees, lowering deposit rates, or raising lending rates. Finance Minister Nicola Willis has firmly stated that she expects the sector to absorb the charges rather than pass them to the public. The legal mechanism for the charge is established under Section 296 of the Reserve Bank of New Zealand Act 2021.

'I would be extremely surprised if banks passed this on to their customers. Similar levies in other jurisdictions have not typically been passed on to customers.'

To support this expectation, the government highlighted the substantial earnings of the major financial institutions operating in the country. The NZ$209 million levy, which will be recovered over a four-year period, represents less than 1% of the combined pre-tax profits of the country's major banks. In 2025, the combined pre-tax profits of the four largest banks—including ANZ Group Holdings, Westpac Banking, ASB Bank (the Commonwealth Bank of Australia unit), and other major entities—stood at NZ$9.53 billion. Given this strong profitability, the government maintains that the financial sector possesses more than enough capacity to manage the regulatory cost without impacting consumer pricing.

Other sector participants and observers, including the New Zealand Banking Association, Consumer NZ, Heartland Group Holdings, and professional advisory firms such as KPMG NZ, BDO NZ, DLA Piper, and Deloitte New Zealand, are closely watching how the implementation of the levy will shape competition. Industry dynamics are already under scrutiny following recent discussions on market competitiveness, which originally gained traction under previous policy evaluations.

Consultation and Implementation Timeline

The introduction of the prudential levy follows a multi-year policy development process. In February/March 2023, The Treasury New Zealand advised the then-Finance Minister Grant Robertson on various options for a bank levy, including a one-off retrospective charge or a permanent one. At that time, Treasury recommended against an immediate levy in favour of a Commerce Commission market study on banking competition. However, public and political appetite for a banking sector contribution remained high. On May 26, 2026, polling data released just prior to the budget announcement showed that over half of New Zealanders supported a targeted levy on major banks.