Big banks could face a bigger tax bill after Budget 2026, as Finance Minister Nicola Willis seeks advice on whether they are paying their fair share

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 general list of policy work underway by the Reserve Bank and Treasury, and was first reported by the NZ Herald on Monday morning.  

“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,” it said. 

Finance Minister Nicola Willis confirmed the Government had asked for advice on whether the major banks were paying “their fair share of tax” and giving New Zealanders “a fair deal”.

IRD was considering a “wide range of options” and nothing had been considered by Cabinet yet. But she was particularly interested in how the tax regime compared to Australia, where the four largest Kiwi banks’ parent companies are based.

The advice comes after a select committee inquiry into bank competition and as the government struggles to balance the budget without cutting pensions or health spending.

Increasing taxes on big banks could clawback some of the perceived unfair profits earned and redirect them into critical government services or reductions in other tax rates.

In 2017, Australia imposed a 0.06% tax on banks with liabilities over AU$100 billion. It was designed to raise revenue without discouraging lending, make it easier for smaller banks to compete, and to recognise the benefit of an implicit government backstop.

Raising revenue and improving sector competition are both relevant in New Zealand, however the new levy-funded deposit insurance scheme has reduced the implicit Crown backstop. 

Another possible policy IRD might look at are ‘thin capitalisation rules’, which are meant to stop multinational banks and companies from loading up their NZ operations with debt to reduce total tax bills.

The rules stop firms from using excessive debt to shift profits offshore by limiting how much interest a company can deduct if its debt exceeds 60% of its assets. 

Australia now uses a stricter rule based on earnings, which caps interest deductions at 30% of a company’s taxable income. IRD could consider a similar move to ensure banks are paying tax in line with the profits they earn in NZ.

Adopting local versions of these Australian policies could raise (very roughly) up to $500 million a year and help to reduce some of the funding advantages big banks have over smaller competitors. 

The Labour Government considered larger taxes on bank profits in 2023 which the Treasury said could raise between $230 million and $700 million a year. It was inspired by the Australian liabilities tax as well as levies in the United Kingdom, Germany, and Canada.

The Treasury advised against the windfall tax on net profits and Labour ultimately scrapped the policy. But National Party members and Nicola Willis have repeatedly hinted they are interested in making the banks pay for their oligopoly position.

Parliament’s finance and expenditure committee is currently writing a report on banking competition based on a nine-month inquiry which wrapped up in May.

Act Party roadblock 

If Willis wants to implement a bank tax, she will first have to convince some of her Cabinet colleagues. Act Party Leader David Seymour said on Monday he thought banks were being fairly taxed and didn’t think reform was needed.   

“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 said. 

If Willis were to bring a proposal to Cabinet, he would want to know it treated the banking sector the same as other businesses which may be similarly profitable. 

“Because 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”.