Budget 2025, the Growth Budget

This afternoon, Finance Minister Nicola Willis delivered the New Zealand Government's Budget 2025 – the Growth Budget.

As anticipated, the Government has shown restraint in setting this year's Budget, with the pool of new funding available reduced from NZD2.4 billion to NZD1.3 billion. This reflects the coalition Government’s ongoing focus on "reducing wasteful spending", against a backdrop of global economic uncertainty, while targeting areas to stimulate economic growth.

The key headlines relevant to New Zealand businesses are as follows:

• New capital investment: Additional investment of NZD6.8 billion, largely allocated to health (over NZD1 billion), education (NZD734 million), defence (over NZD1 billion), and other areas (over NZD3.9 billion).

• Introduction of the Investment Boost tax incentive: This initiative allows businesses to claim an immediate tax deduction of 20% of the cost of certain new productive assets in the year of acquisition, in addition to standard depreciation on the asset, calculated as if the cost of the asset were reduced by 20%. This applies to new assets acquired on or after 22 May 2025. Minister Willis has stated that:
  
  "Treasury and Inland Revenue estimate Investment Boost will improve economic growth, lifting New Zealand’s GDP by 1%, wages by 1.5%, and our capital stock by 1.6% over the next 20 years, with around half these gains expected in the first five years."
  
  
• KiwiSaver changes: There were significant changes announced to KiwiSaver which will increase retirement savings over time, but which were combined with overall reductions in the Government's contribution. The changes include:

• From 1 April 2026, the default employee and employer contribution rate will increase to 3.5%, rising to 4% from 1 April 2028. Employees will have the option to temporarily reduce their contribution rate to 3% and, if they do so, their employer's rate will also reduce to 3%.
• From 1 July 2025, Government contributions will be extended for 16- and 17-year-olds, with employer matching contributions applying from 1 April 2026.
• From 1 July 2025, the annual Government contribution will be halved and capped at a maximum of NZD260.72. It will also become means-tested, with members earning over NZD180,000 no longer eligible. The 2024/2025 contribution will be unaffected and paid out as usual in July/August 2025.

• Inland Revenue audit activity: The Minister announced an additional NZD35 million per year for Inland Revenue to enhance tax compliance and collection, up from NZD27 million per year (July 2022 – June 2025). The return on this investment is forecast at NZD4 for every dollar spent in 2025/2026, rising to NZD8 per dollar in 2026/2027.

• Thin capitalisation: As previously announced, NZD65 million has been allocated to reform thin capitalisation rules, with the aim of incentivising foreign direct investment in infrastructure and public-private partnerships. The details of this change are subject to the outcome of future consultation.

• Employee share schemes: NZD10 million has been allocated to allow for future changes that will enable start-up and unlisted companies to defer an employee's tax liability (until a liquidity event) on share awards.

• Invest New Zealand: further funding was announced to establish Invest New Zealand as a one-stop shop to attract overseas investment.

Please reach out if you wish to discuss how the New Zealand Government's 2025 Budget may impact your business.