Government plays down request for advice on tax banks pay

Monday, 7 July 2025

The Government has sought advice from Inland Revenue on whether all is well with the way banks are paying tax.

However, it is positioning the work as more technical in nature, rather than a harbinger of it proposing a windfall tax on excess bank profits.

Finance Minister Nicola Willis said a windfall tax was “not what we've been looking at”.

Instead, she indicated the issues being considered concerned the way that parent banks and branch banks in New Zealand interacted for tax purposes.

“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.”

There was some “very arcane and complex tax law in that area” in which New Zealand did things slightly different to OECD’s guidelines, she said.

But officials would also look at the Australian major bank levy “which is something that we don't have here”, Willis said.

The Australian levy is a 0.06% levy on the value of some liabilities of Australia’s five largest banks that raises about A$1.6b (NZ$1.7b) a year.

The levy is designed to ensure Australian banks pay a contribution towards the broader costs of managing economic shocks.

ANZ, ASB, BNZ and Westpac paid $2.6 billion of the total of about $17b in company tax netted by Inland Revenue last year, but still made a combined after-tax profit of $6.4b.

Deloitte tax partner Robyn Walker said she didn’t believe there would be many grey areas over how much tax banks should pay under existing legislation, or at least no more than there would be for businesses in general.

“My experience of large businesses is that they are all quite conservative with their tax positions.

“You always have your boundary issues of ‘how should this software expenditure be treated?’ or ‘is this thing capital or not in terms of getting claiming deductions?’. But there is nothing special there from a banking perspective,” she said.

The Government might be seeking advice on the merits of following some other countries in introducing some sort of extra tax, she said.

The Australian levy aside, several countries including Britain, Italy and Spain have introduced windfall taxes or other levies on banks in recent years in response to concerns over high levels of profitability.

It would be normal for a Government to seek advice on what other countries had done and the impact their policies had, Walker said.

One of the questions would be whether banks had been able to pass on the cost of windfall taxes to their customers, she said.

But Walker said she would be surprised if it ultimately went down the road of a tax on excess profits.

“An extra tax on banks doesn't really fit with the narrative that everybody should be treated the same.

“How is it different from denying interest deductions to landlords, for example?”

Banking Association chief executive Roger Beaumont said banks paid more than 22% of all corporate tax and if the Government was considering imposing extra taxes “we would hope they take into account the significant contribution banks already make to the economy, businesses, and households”.

Former finance minister Grant Robertson sought advice on a windfall tax on bank profits from the Treasury when Labour was in power in 2023.

Officials advised him then that excess profits could be defined as profits above the level that would be expected in a workably competitive market.

The large Australian-owned banks had persistently elevated levels of profitability in New Zealand relative to comparators in other countries, the Treasury said then.

But it advised against a windfall tax, saying that could have “unintended consequences”, including undermining confidence in the certainty and predictability of the tax system.