The initiatives announced in Budget 2025 made it clear the government’s focus is on growth and investment, with a desire to balance the need for incentives with the limited amount of funds available. We outline the key points below:

Investment Boost

A new deduction called Investment Boost will enable a 20% immediate deduction for the cost of new assets in the year of purchase. Depreciation deductions will still be available, albeit on a reduced cost base.

Investment Boost will not cover:

• Assets that have previously been used in New Zealand. This means no 20% deduction will be available for existing assets, including buildings
• Land
• Trading stock
• Residential buildings (dwellings)
• Fixed-life intangible assets (such as patents)
• Assets that are fully expensed under other rules

Investment Boost will be available immediately, on all eligible assets with no value limit. This includes new commercial and industrial buildings. Assets that were under construction on 22 May 2025 (but are not yet used, or which would be available for use for the first time after 22 May 2025) will also be eligible. Eligible assets include improvements to farmland, planting of listed horticultural plants, improvements to aquacultural businesses and improvements to forestry land.

Investment Boost is forecast to cost the government $6.64 billion through to 30 June 2029.

KiwiSaver changes

There have been tweaks to KiwiSaver, with an element of giving with one hand and taking with the other.

The default rate for employee and employer contributions will increase over the next few years, with both being 3.5% from 1 April 2026, and 4% from 1 April 2028. From 1 July 2025, the annual government contribution will be halved from the existing 50 cents per dollar that a member contributes (to a maximum of $521.43) to 25 cents per dollar that a member contributes (to a maximum of $260.72). The annual government contribution will also only be available to employees earning less than $180,000 per annum.

Eligibility for KiwiSaver government contributions and employer matching will be extended to 16- and 17-year-olds from 1 July 2025 in the case of government contributions and 1 April 2026 in the case of employer matching.

There will be an optional ability for employees to reduce their contribution to 3%, with a corresponding reduction in the employer contribution rate to 3%, but reductions will revert to the default rate after a year. It will be possible to opt down again if the employee wishes.

Inland Revenue activity

The government is providing an additional $35 million in Inland Revenue funding for compliance and collection activities, and a continuation of $26.5 million a year of funding provided in the 2022 Budget, which was due to cease in June. The government continues to expect receiving $8 for every $1 spent on Inland Revenue funding.

Digital Services Tax Bill

It was announced overnight that the government has withdrawn the Digital Services Tax Bill, which would have seen companies such as Google taxed on sales to New Zealand customers which were not otherwise taxed in New Zealand. While the President of the United States has not directly threatened New Zealand in relation to its Digital Services Tax Bill, his previous comments in relation to such legislation proposed and enacted overseas, in addition to the New Zealand government’s preference for a multilateral solution to the taxation of digital services, meant it was prudent to withdraw this bill given the current global climate.

Other

Several other things have been confirmed in the Budget including:

• Changes to the thin capitalisation rules. Under consideration is a targeted rule applicable to infrastructure projects and a more general rule applicable to third-party debt. Further detail is expected in due course.
• Changes to the tax rules for employee share schemes. Under consideration are rules that would see the current taxing point (the point at which the shares are earned) deferred. Further detail is expected in due course.
• Changes to the FBT rules – the detail is expected once feedback previously provided has been considered.
• Changes to Working for Families and Best Start thresholds.
• Retaining the existing Student Loan repayment thresholds indefinitely, rather than the annual small increases that have occurred to date.

Economy

Treasury is expecting real GDP growth to average around 3% over the next three years, but this will mean that on a per capita basis, GDP will only recover to 2023 levels in 2028. The operating balance before gains and losses, excluding ACC, is expected to return to surplus by 2029, with debt increasing to 46% of GDP by 2028 before starting to decline. Unemployment is expected to remain at 5% for a further year. These forecasts are heavily caveated given the current unstable global environment.

In her speech, the Minister of Finance mentioned we can only flatten and bend the curve. It is worth noting that a similar approach was taken during the period of the Fifth National Government led by Sir John Key and Sir Bill English.

Comment

This Budget is clearly focused on growth and investment. Investment Boost is encouraging, especially where assets with a lower depreciation rate are purchased, and it is a significant targeted measure aimed at increasing businesses’ capital investment and improving productivity, both of which have performed poorly in the past decade. Investment Boost means that now is a good time to review your business’s fixed assets, as well as ensure you are claiming the correct rate of depreciation. 

Most of the KiwiSaver changes were proposed in the Retirement Commission’s report last year, so it is good to hear the government is giving consideration to the views of experts and while it is disappointing the government contribution is reducing, its value toward improving savings was doubtful. 

With increased funding for Inland Revenue activity, it is inevitable risk reviews and audits will increase – and we have been increasingly busy with these in recent months. If you have any doubts about tax positions taken, we urge you to contact your Baker Tilly Staples Rodway advisor. All these measures are consistent with the targeted surgical approach taken by government, with the only broad item being Investment Boost.

It is worth noting our pre-Budget survey. There was a high level of importance attached to government encouraging increased technology and innovation, and it seems this will at least in part be addressed by Investment Boost. Likewise, Investment Boost likely means the expected neutral impact of the Budget on your business has changed to a more positive impact.

It is unfortunate the economic tough times will continue, but there is light at the end of the tunnel. If you wish to discuss these measures, or have any queries, please contact your Baker Tilly Staples Rodway advisor.