Finance Minister Nicola Willis Considers Tax Review for Banking Sector Ahead of 2026 Election

New Zealand’s Finance Minister, Nicola Willis, has initiated a review of the tax settings applicable to the banking sector, signaling a potential shift in policy ahead of the 2026 general election. The move comes as part of broader efforts to ensure banks are paying their fair share of tax and to address concerns over competition and profitability in the sector.

Willis confirmed to the Herald that a “wide range of options” is being considered to assess whether the current tax regime for banks is appropriate. The review, commissioned by Inland Revenue, is expected to inform the 2026 Budget, which will be delivered just months before the election. The work is being conducted in response to growing public and political scrutiny over the profitability of major banks, particularly those with foreign ownership.

The review was uncovered through a document released under the Official Information Act (OIA), which outlined various policy workstreams related to banking and the Reserve Bank. One line in the document stated: “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.”

Willis emphasized that the Government is committed to ensuring New Zealanders receive a fair deal from banking services. “Our work to enhance banking competition is wide-ranging, and as part of this, I have sought advice on whether the major banks are paying their fair share of tax,” she said. The Finance Minister also expressed interest in how New Zealand’s bank tax regime compares with that of Australia, particularly in light of the significant profits Australian banks generate from Kiwi customers.

While no decisions have been made, and no recommendations have been taken to Cabinet, Willis indicated that any potential tax policy changes affecting the banking sector would likely be considered as part of the 2026 Budget. Inland Revenue confirmed that it is examining a variety of income tax settings to determine whether banks are being appropriately taxed, with work still ongoing and no final decisions reached.

The Government has long advocated for increased competition in the banking sector. Last year, the Finance and Expenditure Select Committee launched an inquiry into banking competition, following a request from Willis. The inquiry included public hearings with the banks, focusing on their profitability compared to those overseas. A report is still pending, but the findings could influence the direction of the tax review.

Banking tax policy is complex, with the Income Tax Act governing the rules for how tax is imposed on different types of income. The Act is nearly 4,000 pages long and covers everything from PAYE to rebates for Australian wine producers. Banks, despite being largely foreign-owned, are among New Zealand’s largest taxpayers. ANZ, BNZ, ASB, and Westpac collectively paid over $2 billion in annual tax on average over the past two years, contributing significantly to the country’s corporate tax take.

Over recent years, various ideas have been proposed to impact the tax paid by banks. A windfall tax, which would target excess profits, was previously floated by the Greens and considered by the Labour Government. However, officials advised against it, citing potential risks to confidence in the banking system and the possibility that the burden would be passed on to customers. Cutting the corporate tax rate has also been discussed as a means to drive competition, though this would affect all sectors, not just banks.

Willis has indicated a preference for examining the “tax rules that sit underneath” the headline corporate tax rate, suggesting that more technical changes to the system may be favored. Ahead of this year’s Budget, the Government received advice on reducing the company tax rate from 28% to 23%, but officials warned that such a move would cost around $10.8 billion over the forecast period and could lead to increased tax avoidance.

Instead, the Government opted to implement the Investment Boost tax deduction policy. Banks will also pay levies to fund the new Depositor Compensation Scheme, which insures deposits of up to $100,000 per person, per institution. This scheme, administered by the Reserve Bank, aims to protect Kiwis’ money in the event of a bank’s collapse.

In 2017, the Australian Government introduced a “Major Bank Levy” on authorized deposit-taking institutions with total liabilities exceeding A$100 billion. The levy was described as a “fair contribution” to level the playing field with smaller banks. Willis’s review may draw inspiration from such models as New Zealand seeks to balance competition and fairness in its banking sector.

As the 2026 election approaches, the outcome of this tax review could have significant implications for the banking industry and the broader economy. With the Government keen to promote competition and ensure fair taxation, the coming months will be critical in shaping the future of banking policy in New Zealand.