New Zealand will return to surplus sooner than previously expected, new Treasury forecasts released at today's Budget show – as the Government reveals a new levy on banks, alongside other taxation changes.
There are Budget 2026 changes including for fringe benefit taxed vehicles, a new levy on banks and insurers, and an overhaul of charity donation rules.
Budget 2026: Key announcements, winners and trade-offs explained, watch on TVNZ+
Councils would also receive more money for taking on more housing within their borders.
The forecasted return to surplus in the 2028/29 financial year — under Finance Minister Nicola Willis' preferred OBEGALx measure — leaves the books in a better shape than many had expected, including the last update in Treasury's half-year update in December.
Willis, who is also the National Party's finance spokesperson, was blunt when asked if decisions required to meet surplus represented a strong election-year Budget.
"It would be easier for me personally to try and bribe New Zealanders with their own money this year. It would actually be politically expedient to pretend we can afford a lolly scramble. The truth is we can't," she said.
"I've searched my conscience, and the Cabinet has searched it, and we know that we have to be responsible at this time, or we will put every Kiwi and their family at risk."
Willis used the forecasted improvement to highlight what she termed "disciplined economic management and a government taking its responsibilities seriously".
"The $2.6 billion OBEGALx surplus forecast in 2028/29 would be the first surplus in a decade, and is a big improvement on the $900 million deficit forecast in December’s half-year update," she said in a Budget media release.
"Treasury also expects net core Crown debt to start reducing as a percentage of GDP in 2028/29, with this turning point occurring a year earlier than previously forecast.
Budget under fire as critics say it fails to ease cost-of-living pressures - Watch on TVNZ+
New forecasts from the Treasury reveal a surplus is now not expected until 2030 – when the books will be in the black by $2.3 billion. (Source: 1News)
"This improvement in the country’s books is reflected in the Government’s borrowing programme.
"NZ Debt Management has lowered its forecast issuance of government bonds by $6 billion over the next four years, the first downward revision to the bond programme since 2021.
"That is $6 billion New Zealand will not have to borrow, and not have to pay interest on."
Treasury’s central forecast assumes the impact of the fuel crisis will be temporary, based on market pricing. But Willis said that "while global uncertainty remains, even Treasury’s downside scenario shows OBEGALx returning to surplus in 2028/29".
In her Budget speech, she said it was "heartening to see for the first time that the surplus date is coming forward, not being pushed back".
Asked whether the Budget was overly optimistic, Willis said the forecasts were "Treasury's independent forecasts" and represented "their prudent central scenario".
The Finance Minister says reductions will be gradual and spread across agencies as questions remain over impact. (Source: Breakfast)
She noted the Budget documents outlined both downside and upside scenarios, and that "even in the downside scenario, the Government's prudent fiscal plan means we would still deliver a surplus in that target year".
The measure being used by Willis and the coalition Government – OBEGALx – is a measure that excludes ACC.
Under the traditional OBEGAL measure, the Government will still return to surplus, but only by the final year of the forecast period.
"The gap between OBEGAL and OBEGALx stays relatively stable across the forecast period, reflecting the difference between ACC revenue and expenses remaining broadly unchanged," according to the Budget Economic and Fiscal Update.
Willis also set aside a $450 million contingency reserve for the fuel crisis response.
New bank levy announced
At today's Budget, Willis also announced a new prudential levy on banks, non-bank deposit takers, insurers, and other financial market participants.
The revenue from the new levy will be less than 1% of the total profits of the big four banks alone, according to the minister.
She said it mirrors "the approach taken by the Financial Markets Authority and the Commerce Commission, which fund much of their activity through levies".
Finance Minister Grant Robertson says it's "not about bank conduct and culture" but ensuring people get "the best deal possible". (Source: 1News)
"It is also consistent with international practice in countries like Australia, Canada and the UK," Willis said in a media release today. The money will be used to "help cover the costs of services provided by the Reserve Bank".
“The prudential levy is estimated to recover around $209 million over the next four years. The levy will be paid to the Reserve Bank, with the revenue returned to the Government through an increased dividend," the Finance Minister said.
When asked why she had not gone further, given public frustration with bank profits, Willis described it as "a modest prudential levy" and said, "New Zealand stands out for not having made banks and others pay for those services, so we're fixing that".
But she acknowledged she had "looked at and continue to actively consider other measures", saying "there was not agreement on any of them" within the coalition.
ACT leader David Seymour said he "strongly believe[d] the Government has a position we don't introduce new taxes beyond what is fair and already applied to others".
In other changes, the Budget also simplifies fringe benefit tax rules for private motor vehicles by removing detailed logbook requirements, said Revenue Minister Simon Watts.
"Changes in this area will simplify the rules by taking a ‘close enough is good enough’ approach. This will significantly reduce compliance costs for businesses."
Charities untaxed net income to 10x
Watts also announced big changes to tax rules for charities and not-for-profits.
It’s being blamed on the high costs facing households, prompting GiveALittle to create a special “day of giving”. (Source: 1News)
He said the Government was "introducing a range of measures to ensure the charitable and not-for-profit sector is strong, fair, and has integrity".
These included increasing the amount of net income a not-for-profit can earn without paying tax from $1000 to $10,000 while also capping donations eligible for a tax credit.
Watts framed this as "ensuring the donation tax credit scheme remains financially sustainable by capping eligible donations at $100,000 per year".
"This will also limit tax planning risks that can arise when a donor makes a gift to a charity they control themselves."
Willis told media the cap reflected concerns about "donor-controlled organisations" – wealthy people who own their own charity getting a tax rebate for significant donations.
She said those making large donations "are not doing it for a tax break, they're doing it because they believe in the charitable cause to which they're giving".
The $100,000 donation cap translates to a maximum tax credit of $33,333 per year.
Other changes include "allowing donors to receive their donation tax credit refunds throughout the year in certain circumstances, rather than waiting until the end of the tax year". Additionally, donors would be allowed "to gift their donation tax credit to a charity".
The Budget also introduces a new rule taxing outstanding loans companies have made to their shareholders, if those loans remain unpaid six months after the company is removed from the Companies Register.
The change was expected to raise $146 million over four years.
Separately, the Government is investing a further $15 million a year in Inland Revenue debt compliance activities.
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