Government probes bank tax settings ahead of Budget 2026
The New Zealand government is reviewing whether banks are paying their fair share, with Finance Minister Nicola Willis (pictured) seeking advice from Inland Revenue ahead of next year’s budget.
Willis said she began receiving advice last year from IRD on how income tax laws apply to major banks operating in New Zealand, especially in comparison to their Australian parent companies.
“There’s a range of highly technical, highly complex issues with the way that banks are taxed, and we’re just doing a check-in to make sure that it’s resulting in an overall fair system. It was important to check how the ‘parent banks’, and their New Zealand branches interact for tax purposes,” Willis said, noting New Zealand’s tax system differs slightly from OECD guidelines.
Budget 2026 reforms on the table
Inland Revenue has been asked to review whether New Zealand’s banks are paying enough tax ahead of potential changes in Budget 2026. The review was revealed in a list of policy work underway by Treasury and the Reserve Bank, interest.co.nz and 1News reported.
“You and the minister of Revenue commissioned Inland Revenue to review whether income tax settings are applying correctly to banks for potential consideration at budget 2026,” the document said.
Willis confirmed Cabinet has yet to consider any final proposals but is particularly interested in how New Zealand compares with Australia, where the big four Kiwi banks’ parent companies are based.
Australia introduced a 0.06% major bank levy in 2017 on institutions with liabilities exceeding AU$100 billion, designed to raise revenue without deterring lending and level the playing field for smaller competitors.
Willis said she would not rule out a similar approach in New Zealand but confirmed the government was not considering a windfall tax.
IRD is also reviewing thin capitalisation rules, which limit how much interest multinational companies can deduct for tax purposes when their debt levels are too high. Australia has adopted a stricter model that caps interest deductions at 30% of taxable income. IRD may consider a similar move to reduce offshore profit-shifting.
Together, these changes could raise up to $500 million annually, according to prior Treasury modelling referenced in 2023. A windfall tax considered by the Labour government was projected to raise between $230 million and $700 million but was ultimately shelved.
Political debate on fairness and competition
Acting Prime Minister David Seymour said he believed New Zealand’s banks were already being taxed fairly.
“Some of the biggest taxpayers in New Zealand are banks,” Seymour said. “They’re all paying right on the 28% average tax rate as their company tax. There’s nothing to suggest that they are not paying the same share that they would if they were any other kind of business.”
He acknowledged that Willis, like all ministers, regularly sought advice. “I suspect the result of that work will show banks were fairly taxed,” he said.
Seymour said any changes must be rooted in fairness.
“One of the core principles of taxation is that like taxpayers pay tax alike, and unlike taxpayers pay tax unlike, based on the size of the difference,” he said.
Seymour added that while the idea of a bank levy to fund future bailouts was “interesting,” he would need to see more detail before supporting any change.
Meanwhile, Parliament’s finance and expenditure committee is finalising its report on banking competition, following a nine-month inquiry. The government will likely weigh its findings when assessing future tax reforms.
