Bob Edlin: Budget surprise for the banks...

Budget surprise for the banks – but Willis says she will be surprised if the “tiny” levy costs are passed on to customers

One News reports:

Finance Minister Nicola Willis says she would be “extremely surprised” if banks passed a new $200 million prudential levy announced in Budget 2026 onto their customers, though Cabinet has not yet decided what action it would take if they did.

The levy on banks, non-bank deposit takers, insurers and other financial market participants that would be used to pay for their regulation was one of the few revenue-raising measures presented in Willis’ third and final Budget of the parliamentary term.

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Presenter Jack Tame repeatedly asked Willis on Q+A on Sunday what regulatory tools the Government had to prevent banks from absorbing that cost through higher customer charges.

“We haven’t made that decision as a cabinet,” she said.

It would be “extremely unwise” for banks to pass the levy on, she added, arguing it amounted to less than 1% of bank profits and brought New Zealand into line with other countries.

“In proportion to their profits, this prudential levy is tiny. They make extremely good margins. Those margins seem to survive whether the economy is going up or it’s going down.”

Tame pressed her on the specific tools in her armoury to stop them, Willis said consumer competition would be the primary check.

“If they see their bank putting on some sort of extra charge to reflect a tiny, tiny prudential levy, then goodness me, they should shop around.”

That’s not what ACT leader David Seymour thinks. He has criticised the levy, arguing the cost inevitably would be passed on to consumers because they were the sole source of revenue for the banks.

“So let’s not tell the easy lie that we would be taxing the banks, you’d be taxing their customers.”

PoO’s observations suggest most government levies are passed on to customers.

Businesses generally raise prices to recover the costs of levies or taxes placed on them.

That means consumers end up paying at least some of the impost, especially when demand is “inelastic” (which means customers can’t easily reduce consumption).

New Zealand governments pull in revenue from several levies.

Because fuel retailers incorporate the fuel excise duty into pump prices, motorists pay it. This is explicitly confirmed by the Ministry of Transport: the duty is collected from fuel companies and “passed on to consumers at the pump.”

But petrol comes into the “inelastic” category.

The elasticity of bank services generally depends on the type of service:

• Deposits and savings: Highly elastic. Customers readily move their money to competitors or Online Banks if interest rates drop or fees increase.
• Loans and credit: Moderately elastic. Demand for mortgages and personal loans shifts noticeably when interest rates fluctuate, as higher borrowing costs deter consumers.
• Checking accounts and basic services: More inelastic. Because changing primary banks requires high switching costs (such as redirecting direct deposits), customers are less likely to leave over minor fee hikes.

Willis is sure the banks won’t pass at least some of those “tiny” new levy costs on to their customers.

Let’s see if her confidence in their wisdom is justified.

Bob Edlin is a veteran journalist and editor for the Point of Order blog HERE. - where this article was sourced.