Cabinet clears RBNZ prudential levy consultation; banks face multi-million bills

Cabinet's Economic Policy Committee has formally authorised public consultation on a prudential levy to shift Reserve Bank supervision costs onto banks, insurers and market infrastructure operators from 2027/28.

The Cabinet Economic Policy Committee on 5 August 2026 agreed to release the consultation document Prudential Levy under the Reserve Bank of New Zealand Act 2021. The minute, ECO-26-MIN-0146, was published by the Treasury on 18 September 2026.

Cabinet noted Budget 2026's in-principle decision, subject to industry consultation, to introduce a levy recovering the costs of the Reserve Bank of New Zealand's prudential functions. That earlier decision is recorded as CAB-26-MIN-0156.

The committee authorised a ten-week consultation from August through October 2026. It invited Finance Minister Nicola Willis to report back in early 2027 with outcomes and final policy decisions.

The Reserve Bank is running the process on the Minister's behalf under section 296 of the RBNZ Act 2021. Consultation opened on 11 August 2026. Submissions close at 5pm on 16 October 2026.

Dollar path and who pays

Budget 2026 materials estimate the levy will recover around $209 million over four years. Treasury's Stage 1 Cost Recovery Impact Statement, finalised 11 May 2026, puts GST-exclusive prudential costs at $68.1 million to $72.4 million in FY2027/28, depending on the allocation method, then rising with 2% inflation.

Under allocation method 1, indicative totals are $68.1m in 2027/28, $69.5m in 2028/29 and $70.9m in 2029/30. Method 2 is higher: $72.4m, $73.8m and $75.3m.

Consultation materials reported by interest.co.nz and BusinessDesk allocate about 54% to deposit takers, 39% to insurers and 7% to financial market infrastructures over a three-year $209 million path. The CRIS preliminary split, based on frontline supervisor shares, was 50%/35%/15%.

Indicative CRIS tables show Group 1 deposit takers — four domestic systemically important banks — bearing about $29.8 million in total, or roughly $7.4 million each on average. Branches would face a lower assets-based rate. Designated insurers would carry most of an indicative $24.5 million insurer total.

Interest.co.nz reporting of the consultation paper put ANZ New Zealand, with about $219 billion in March assets, near $10 million a year. BNZ, ASB and Westpac New Zealand would each pay several million. Kiwibank would pay less. IAG New Zealand could face more than $5 million.

The RBNZ preference includes a suggested $50,000 fixed component for locally incorporated deposit takers plus an assets-based rate. Levy revenue would be paid to the Bank and returned to the Crown via a larger dividend. The Bank's operating budget and functions would not expand.

Treasury estimates full pass-through would lift borrowing costs by less than one basis point and insurance premiums by less than 0.2% on average. An indicative $35 million deposit-taker levy compares with about $760 billion in sector assets. An insurer levy of $24.5 million compares with gross revenue just over $18 billion.

Full recovery and international peers

The consultation proposes full cost recovery for all in-scope prudential costs. Section 294 of the RBNZ Act 2021 empowers regulations to meet those costs. The power had not been used before the Budget 2026 in-principle decision.

Treasury's CRIS favours full recovery on externality grounds: regulated entities create systemic risk and should fund its mitigation. It says splitting private and public benefits would be arbitrary. Full recovery is described as more consistent with Australia, the United Kingdom, Canada and Ireland. Domestic conduct regulators and the proposed AML/CFT levy use partial models.

CRIS international comparators put New Zealand's roughly $70 million recovery at about $14 per capita, near Australia's APRA-style figure on the same table.

Pass-through politics

Finance Minister Nicola Willis has framed the levy as shifting cost from taxpayers to industry. She told interest.co.nz after Budget 2026:

I would like to send them a very clear message: They are some of the most profitable banks in the world. Other counties around the world have these levies and you haven't seen it being passed through.

She added: "I would be extremely disappointed if at this time, New Zealand banks chose to do that to their customers."

ACT leader David Seymour took the opposite view. He said customers are banks' only money source and will pay. New Zealand Banking Association chief executive Roger Beaumont said banks understand the need for appropriate regulator funding and will engage constructively so the levy is "appropriate, effective, and well targeted."

RBNZ Assistant Governor for Financial Stability Angus McGregor has stressed the change is about funding, not how the Bank regulates.

BusinessNZ has sought a whole-of-government levy review under the Regulatory Standards Act 2025, citing stacking with the proposed AML/CFT charge — about $23 million a year on banks from mid-2027 under Ministry of Justice modelling.

What happens next

The published timeline targets final Cabinet decisions in early 2027, regulations gazetted in June–July 2027, and levy effect from August 2027 for FY2027/28 collection. Design choices on full versus partial recovery, sector weights, fixed versus variable formulas, and branch treatment remain open until submissions close and advice returns to Cabinet.

For households and firms the near-term story is fiscal reallocation and regulatory architecture, not a large shock to credit supply. Stacked levies, Deposit Takers Act implementation and insurance reforms will matter more for medium-term pricing than this charge alone. Submission themes from NZBA, large insurers and BusinessNZ will shape whether Cabinet locks full recovery or softens the design before regulations are made.