The New Zealand Government delivered its 2025 Budget today, 22 May, under the leadership of Finance Minister Nicola Willis. The operating allowance for new spending has been reduced to $1.3 billion, down from the previously planned $2.4 billion. This year's budget emphasises fiscal discipline, economic growth and targeted investments, reflecting a drive to restoring financial stability and addressing long-term economic challenges.

KiwiSaver Changes

  • The default KiwiSaver contribution rate for both employees and employers will increase from 3% to 4% in two stages: to 3.5% from 1 April 2026 and 4% from 1 April 2028. Employees can opt out temporarily down to the current 3% rate, with employers still matching that amount.
  • From 1 July 2025, 16 and 17 year-olds will be eligible for the government contribution, and from 1 April 2026, employer matching will also extend to this age group.
  • The annual government contribution will be halved to 25 cents per dollar contributed, up to a maximum of $260.72, starting 1 July 2025. The current year's government contribution remains unaffected and will be paid in July/August.
  • Individuals earning more than $180,000 annually will no longer receive the government contribution from 1 July 2025.
  • Overall, employees contributing at the new default rates will see their KiwiSaver balances grow faster, resulting in larger savings at age 65 or for a first home purchase.

Investment Boost

A key feature of Budget 2025 is the Investment Boost, a tax incentive designed to encourage businesses to invest in productive assets such as machinery, tools and equipment. Under this initiative, businesses can deduct 20% of the value of a new asset from their taxable income in addition to the usual depreciation. This improves cash flow, making more investment opportunities financially viable and encouraging increased investment.

Business investment enhances worker productivity, raises incomes and drives long-term economic growth. By expanding New Zealand’s capital stock, the Investment Boost is expected to increase GDP by 1% and wages by 1.5% over the next 20 years, with half of these gains occurring in the next five years.

Driving Economic Growth

Budget 2025 includes several initiatives aimed at fostering economic growth across various sectors:
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  • Attracting foreign investment through Invest New Zealand.
  • Changes to international tax rules to encourage infrastructure investment.
  • Reforming employee share scheme taxation to help Kiwi startups compete for talent.
  • Reinvesting international visitor fees into tourism and conservation upgrades.
  • Accelerating reforms in science, innovation, and technology.
  • Renewing screen production rebates to support the screen industry.
  • Supporting the replacement of the Resource Management Act to unlock investment and growth.

Pay-Equity Shake Up

The government has advised that “Significant Budget savings have resulted from fixing Labour’s flawed pay-equity regime and removing an assumption that the Government would fully fund potential settlements involving non-Government employers”.

Nicola Willis stated that the total savings from these changes are projected to reach approximately $12.8 billion over the next four years. This funding has been redirected to support investments in frontline health, education and other government services.

The adjustments to pay equity now require workers to meet a higher threshold to prove they are underpaid due to sex discrimination.

Other Key Initiatives

  • Health Sector Investment: An additional $1.6 billion over four years will be allocated to health services: funding for district health boards (including developing Nelson Hospital and Wellington’s emergency department), aged care and mental health initiatives.
  • Education Funding: The Government will invest $2.9 billion over four years in education, covering areas such as school property ($700m in new schools and classrooms), early childhood education subsidies, enhanced learning support and teacher training.
  • Transport Infrastructure: A total of $2.68 billion over four years will be directed towards transport projects, including road repairs, rail network upgrades and emergency response services.
  • Justice and Defence: Funding of $480 million over four years will be provided for additional police personnel, corrections facilities, and defence capabilities to enhance public safety and national security.

Further Changes

  • Approximately 142,000 families will receive an additional $14 every two weeks through the Working for Families scheme.
  • Inland Revenue to get new funding of $35 million a year for increased tax compliance and collection.
  • Parents will assume more responsibility for unemployed single 18 and 19 year-olds with the Job Seeker and emergency benefit eligibility being tightened.
  • Prescription durations for medications will be extended from three months to one year.
  • Student loan borrowers will face increased repayment obligations.
  • More SuperGold cardholders will qualify for rates relief.
  • Over $30 million will fund boot camps for repeat youth offenders.
  • Foodbank funding of $15m extended for another year.

Summary

In summary the 2025 Budget focuses on tightening government spending while addressing key infrastructure and social priorities. The investment boost program for businesses will help to drive economic growth, whilst Kiwisaver changes are focused on growing retirement funds.

As always, the Ecovis KGA team is here to help you with any queries you may have around the content of this news brief or anything else regarding your business.
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