The Government has introduced a new prudential levy on banks expected to raise $209 million over four years. Finance Minister Nicola Willis says she'd be 'very disappointed' if banks used it to hike charges — but ACT leader David Seymour is not convinced.
The Budget introduced a new prudential levy on banks, non-bank deposit takers, insurers and financial market infrastructure providers, expected to raise around $209 million over the next four years. The revenue goes to the Reserve Bank to cover the cost of its regulatory functions, then returns to the Government as an increased dividend. The Government describes it as modest — less than 1 percent of the big four banks' total annual profits combined.
But whether the cost stays with the banks or gets passed on to customers is a different question — and one the Government, opposition, and the banks themselves are watching closely.
Finance Minister Nicola Willis was clear about her expectations. "I would like to send them a very clear message: they are some of the most profitable banks in the world," she said in an interview with interest.co.nz after the Budget. "I would be extremely disappointed if at this time, New Zealand banks chose to pass costs on to customers."
Labour's finance spokesperson Barbara Edmonds said she expected the levy to be scrutinised. "My disappointment however will be if those banks start to pass those onto customers, given the higher profits they have," she said. "We'll be watching that very carefully."
ACT leader David Seymour was less equivocal. Writing in the NZ Herald, he said: "Let's be honest, banks only have one source of money. That's their customers. So let's not tell the easy lie that we would be taxing the banks, you'd be taxing their customers." He said there was "no question" customers would pay the cost.
The levy in context
The $209 million over four years works out to roughly $52 million per year — a relatively small amount against the big four banks' combined profit pools. ANZ, ASB, BNZ, and Westpac collectively generate billions in profit annually. Whether that scale of levy materially affects pricing behaviour is debatable. The Government's position is that it shouldn't. The banks themselves have not publicly stated whether they intend to adjust rates or fees.
What makes this relevant for everyday New Zealanders is timing. The levy arrives as mortgage rates are already rising — two-year fixed rates have moved from a low of 4.5 percent last year to around 5.2 percent currently, following the RBNZ's May 27 OCR decision and the split vote on rate path. Kiwibank has already lifted some term deposit rates. If banks treat the levy as another cost to be recovered, it could add to the pressure on both deposit and lending rates.
The levy takes effect with the new financial year in July, giving banks a few weeks to decide their response.
This article is for general information only and is not personalised financial advice. Seek advice from a licensed financial adviser (registered on the FSPR) for guidance specific to your situation.