Budget 2025: Our key insights

The 2025 budget announcement by Finance Minister Nicola Willis can largely be characterised by her already well-signalled objectives to reduce government spending as a percentage of the overall economy, and to work towards surplus (currently anticipated in the 2029 fiscal year). 

However, within the operating parameters above, the Government believes this is a Budget focused on increasing future investment and savings, all in the context of a ‘bright economic outlook’ for the country, with anticipated annual economic growth of 3% a year, albeit with some clear and persisting international uncertainties. 

The budget allocates $6.8b for capital spending, as signalled by the Prime Minister in early March, with the bulk of this funding going to the health and education sectors, defence, prisons, and the Elevate Fund.  

Minister Willis announced that to assist with funding the additional spending across these areas, $5.3b of annual savings has been identified, alongside the $1.3b operating allowance already set aside. Much of the savings (around half) arise from previously signalled changes to pay equity legislation, according to Treasury’s analysis. 

New tax incentive

The key tax initiative announced is Investment Boost, a new tax deduction available to New Zealand businesses for purchasing new capital assets. 

It allows businesses to in essence accelerate depreciation, by claiming an additional 20% deduction in the year a qualifying asset is purchased, alongside the standard depreciation deduction. The initiative is available immediately and is expected to cost somewhere in the region of $1.7b annually in foregone tax revenue. 

Assets that qualify: 

• New depreciable assets (e.g., machinery, equipment, work vehicles) 
• New commercial and industrial buildings (even those not typically depreciable) 
• Capital improvements to eligible depreciable property 
• Certain non-depreciable properties eligible for similar deductions (e.g., horticultural, aquacultural, and forestry improvements) 

Assets that do not qualify: 

• Second-hand assets previously used in New Zealand 
• Land (although some land improvements such as fencing may be eligible) 
• Trading stock 
• Residential buildings (except for certain types like hotels, hospitals, rest homes) 
• Fixed-life intangible assets (e.g., patents, however it is unclear at this stage if this exclusion class includes software) 
• Assets fully expensed under other rules 

The Government expects Investment Boost to lift national GDP by 1%, and wages by 1.5%.  

Other items

• Changes are proposed to Working for Families, including raising the abatement threshold and the abatement rate, and income testing the first year of Best Start. 

• Major changes are to occur within the KiwiSaver scheme, including increasing the default employer and employee contribution rates over a 3 year period, extending eligibility for receiving employer and government contributions to 16- and 17-year-olds (currently only 18+), halving the annual government contribution to KiwiSaver for all members, and removing the government contribution entirely for those earning over $180,000 a year.  

• Budget 2025 also includes further funding allocations for Inland Revenue to carry out its tax compliance and collection activities. 

The Government have confirmed they intend to push ahead with pre-budget announcements relating to tax that include: 

• Changes to New Zealand’s thin capitalisation rules, intended to increase attractiveness for foreign investment to assist with New Zealand’s chronic infrastructure deficit. The Budget sets aside $65 million for changes to these rules, pending the outcome of consultation on the details. 

• Changes to the employee share scheme taxing rules, aimed at deferring tax burdens on awards of shares to make it easier for start-ups to attract and retain high quality staff. This initiative is expected to cost $10m in foregone tax revenue. 

• While no mention was made of the Research & Development Tax Incentive (RDTI) scheme, the Prime Minister has previously announced the scheme will be retained for at least the next 12 months. 

Nexia New Zealand View

While it was signalled there could be some kind of investment incentive via the depreciation regime, the scale of the Investment Boost offering is pleasantly surprising, particularly given the otherwise fiscally conservative approach.  

For investors into new commercial buildings, the 20% upfront deduction will represent a particularly meaningful incentive (given depreciation on commercial buildings has been recently entirely removed).  

The devil will be in the detail with this scheme, regarding the inclusion of certain assets (for example software within the context of excluded fixed life intangible assets) and inevitable questions around those already in progress through asset construction, and their eligibility for the scheme. The Tax Bill due to be tabled shortly is expected to be forthcoming with information around these matters. 

The changes to the KiwiSaver framework represent a significant consideration for employers, particularly for small businesses, who will need to carefully assess their new obligations and plan accordingly.  

Businesses with a younger workforce will see an increase in their staffing costs, with 16 and 17 year olds now eligible for the employer contribution into the scheme. And between 2026 and 2028 all employers will see staffing cost increases with the planned increase in the minimum employer contribution (to 3.5% from 1 April 2026 and 4% from 1 April 2028, with the ability to opt to use the 3% rate for certain people).