Budget 2025 is a budget on a budget. Global trade headwinds, uncertainty and conflict are unsettling markets and supply chains. This all upsets business and consumer confidence and reduces the tax revenue that underpins government spending. This is the main reason the government books are in a worse state than they were just six months ago and why Budget 2025 is anything but the lolly scramble government spending announcements of the last decade have tended to be.
Going for Growth in Budget 2025
The New Zealand Governments key approach to Budget 2025 was to further develop their ‘Going for Growth Agenda’. The budget supports this through a mix of incentives, rebates and policy adjustments. All of these initiatives encourage private investment rather than government spending, shifting the burden from the government books and encouraging business to bring forward projects or investments.
Key areas of focus in Budget 2025:
- Improving economic growth through measures targeted at New Zealand’s long-term productivity challenges.
- Implementing a social investment to drive better results from social interventions, improving outcomes, life expectancy and reducing future costs to government.
- Maintaining tight control of spending and targeting spending to the key areas where the government wants to see improvements.
- Reprioritising funding from initiatives that fail to deliver, to those that show promise or success, allowing the government to have a lower than would be normal increase in spending (increased less than inflation and population growth this year).
What is the Business Impact of Budget 2025?
From a business perspective, there are some targeted measures that encourage investment and aim to attract foreign investment, businesses and skilled talent, including:
- Investment Boost is a new tax incentive that will give businesses an immediate 20% deduction on the cost of a new asset, with the balance being depreciated as normal. At a cost of $1.7 billion per year in sacrificed tax revenue, this is one of the largest costs in the budget, with a direct benefit to business.
- Invest New Zealand will be established to be a one-stop-shop to attract foreign investment and talent to the country, especially in research and innovation or sectors with strong growth potential. With a budget of $85 million over four years, the
- Three new public research organisations are established to help drive innovation. Much of this is achieved by a consolidation of the many existing initiatives/entities across government, most notably the disestablishment of Callaghan Innovation.
- An investment of $65 million over the next four years to encourage foreign investment into local infrastructure. This aims to reduce the need or government capital expenditure, reducing debt and servicing costs so the government can reprioritise billions in future budgets towards services.
- Deferring tax on some employee share schemes at a cost of $10million. This is targeted at start-ups and allows them to reward and retain talented staff through share schemes, with the tax burden delayed until the start-up has a more liquid market for its shares.
- A massive increase of $577 million for the film and TV production rebates over the four years. It is expected that with growing demand for quality movies in India and other trade negotiations there, many of their larger productions may move to New Zealand.
- A $100 million surge in funding to the Elevate venture capital fund to help grow promising early stage tech companies. We can only hope this doesn’t go the way of the Green Investment Fund and simply burn the cash on failures.
What is the Investment Boost Tax Incentive?
Investment Boost is an upfront 20% deduction on the cost of a new asset, aimed at boosting investment in productive assets. It applies from the 22nd May 2025 to all new depreciable assets purchased, so there’s no need to wait. It also applies to commercial buildings which now have no depreciation but are eligible for the 20% investment boost deduction.
Investment boost gives you a 20% deduction of the cost incurred in acquiring a new eligible asset. You then add the 80% balance of the cost to your fixed asset/ depreciation schedule and depreciate it as normal.
If you’re buying a new commercial building, you’ll be eligible for the 20% investment boost deduction on the structure of the building. The internal fit-out will continue to be depreciable on current rules and will also be eligible for the 20% deduction.
Areas where this may be the best for commercial buildings are for those that require expensive seismic strengthening. These works will now be eligible for the 20% deduction, even if the balance of the works are not depreciable.
Note: Investment Boost does not apply to second hand assets that have been previously used in New Zealand. However, it ca apply to a second hand asset purchased from overseas and shifted to New Zealand.
Investment Boost Example
New machine purchased by a company for $100,000 on the first day of the tax year. Depreciates at 20%DV.
Previously, the full cost of the asset would be an asset, depreciable from the date of purchase, with $20,000 of depreciation claimed in that first year. This depreciation reduces income tax payable by $5,600.
With Investment Boost, 20% ($20,000) is claimed as an expense at purchase. The balance of $80,000 is an asset and depreciated from the date of purchase, with $16,000 depreciation in the first year. Total deductions in the first year are $36,000. This investment boost deduction plus depreciation reduces income tax payable by $10,080.
Please note that in any future sale of the asset, the Investment Boost portion will be liable to the depreciation recovery rules if it is sold for more than book value.
The hope is that this tax incentive will encourage investment in productive assets in the near future, driving growth. The forecasts expect a $2.2B gain to GDP by 2035 and an additional $1.6B boost to wages over the same decade, just from this initiative.
What Changes are there to KiwiSaver?
For the first time in 13 years, there are some significant changes to Kiwisaver.
From 1st April 2026, the minimum contribution rate will increase from 3% to 3.5%. You’ll be able to opt-down to 3% temporarily.
From 1st April 2028, the minimum contribution rate will increase from 3.5% to 4%. This works out to be an extra $13/week for someone on the average income at the moment. That doesn’t seem like a lot, but when in your balanced risk KiwiSaver, that weekly contribution could compound to be worth $117,000 over your working life.
These contribution changes mirror what was recommended by the Retirement Commissioner.
From the 1st July 2025, there are changes to the government contribution. Firstly, the contribution will drop to $0.25 for every dollar contributed by you, for a maximum of $260.72. Secondly, those earning over $180,000 a year will no longer be eligible for the government contribution.
We are horrible at personal savings for our retirement, which is what puts such a large burden on taxpayers to fund universal superannuation. In Australia, on the day we increase our minimum contribution to 3.5%, they increase theirs to 12%. Their schemes are also compulsory, while KiwiSaver remains largely voluntary (through the ability to opt-out). So while this is a step in the right direction, there is a lot of work to still be done to encourage Kiwi’s to take their retirement savings seriously.
Making Sure Everyone Pays Their Fair Share of Tax
The budget extended and boosted the funding for compliance activities at Inland Revenue.
The government expects that in the short term, this extra compliance focus will generate $4 of extra revenue for every dollar spent, rising to $8 per dollar spent in 2026 and beyond.
From July to December 2024, Inland Revenue conducted 3,600 audits (a 50% increase) and found $600 million in of additional tax that should have been declared. This is what has given the government the confidence to invest further.
Key areas of focus will continue to be the property sector, where increased compliance has netted $153.5 million in just the last few months from some weird GST schemes and Bright-Line compliance. Other areas of interest are crypto currencies, child support, student loans, and the cash economy.
The expectation is also that Inland Revenue will be much tougher on businesses with tax arrears. So if you are having cashflow issues, reach out early. If you owe a SBCS loan to IRD from back in COVID, you need to get this paid off now, as it’ll be defaulted on if not repaid by the five year mark (which is passing now for many borrowers!).
Other Tax Changes in Budget 2025
The government has made some immediate decisions and is consulting on a raft of other changes out of the budget.
One immediate decision is the dumping of the Digital Services Tax. This was on the cards for later in 2025 and would have charged a 3% tax on the revenue generated in NZ by large digital services companies. This has been dropped in favour of working with other governments on a global solution to the tax challenges posed by digitisation.
Fringe Benefit Tax (FBT) is one of the more complex taxes in our system. There are a range of proposals to simplify it. The intent is to reduce compliance costs and in doing so potentially encourage more businesses to voluntarily comply, potentially increasing the tax take.
There are also proposed changed to Working for Families Tax Credits. These changes are proposed to make the scheme more responsive to peoples changes in incomes. The hope is that this will prevent peopel over-claiming and owning large debts back to IRD. Consultation on this is open now.
The Elephants in the Room
On current settings and per capita spending levels, the costs of health and superannuation will push government debt to over 200% of GDP. Some changes are desperately needed in both areas to make them sustain able with a aging population. While the social investment model will help in some areas, and the changes to Kiwisaver are encouraging more personal responsibility, much more is required.
We’ve seen more and more government support becoming means tested across the last few budgets. Is it time we means test superannuation?
More Information and Help Available
You can read the full details of Budget 2025 on the government website here.
To talk about how any of the budget announcements will affect your business and for any help, or to talk about your business, reach out to the team at MBP by email or phone today.