2025 Budget & Economic Update

The Government’s 2025 Budget was released yesterday and strikes a careful balance between fiscal discipline and targeted support for growth. While there were no sweeping tax cuts or large-scale giveaways, a few smart policy shifts aim to nudge both individuals and businesses toward better long-term financial health.

A clear message emerged from this year’s Budget: support will be available for those who truly need it, but if you have the capacity to contribute more, expect to. Whether through KiwiSaver, student loans, or family assistance, means-testing is at the core of many adjustments.

The Budget also outlined three key focus areas guiding this year’s approach:

• Boosting economic growth – particularly by addressing New Zealand’s productivity challenges and encouraging investment.

• Targeting social investment – by directing support toward those with high needs and improving the outcomes delivered by core public services.

• Maintaining tight fiscal control – ensuring spending stays restrained, with new funding only going toward essential government commitments or cost pressures that can’t be covered by reprioritising existing budgets.

Below we’ve broken down a few of the key areas for you to be aware of and what effect these changes may have for you and your business.

Impact on Businesses

While there was speculation about a drop in the company tax rate to 23%, the Government have instead introduced a 20% Investment Boost Incentive, allowing immediate deductions on qualifying capital purchases. The idea is to stimulate spending that flows directly into the economy, which is expected to create a ripple effect through productivity, job creation and wage growth.

This upfront deduction reduces taxable income, effectively lowering the cost of investment and improving cash flow. The scheme applies to new capital assets purchased for business use, such as machinery, tools, vehicles, IT hardware, and similar items that contribute to productivity and operational capacity.

Assets must be:

• New and not second-hand (yes, new commercial buildings are included too)

• Purchased and used in business operations

• Physically located in New Zealand

Further detail is expected around exclusions, but generally, intangible assets and residential buildings do not qualify.

The incentive is proposed to take effect from now, with eligibility tied to when the asset is purchased and used. The 20% deduction is taken in year one, with the remaining cost depreciated over time under normal tax rules from date of purchase.

So with Fieldays around the corner, we may well see a local surge in capital investment, thanks to this timely boost.

KiwiSaver

There are a number of KiwiSaver switch-ups that are aimed at getting employers to save for the country’s future. As demographic and fiscal pressures mount, there’s growing pressure for a full review of New Zealand’s savings system, including the roles of KiwiSaver and NZ Super. These changes, which will be phased in over the next three years, show this is on the forefront of the Government’s minds.

• Increase in the default employee and employer contribution rates from 3% to 3.5% from 1 April 2026 and then to 4% from 1 April 2028.

• The minimum age to be eligible for mandatory employer contributions and Government contributions is dropping from 18 to 16. The government contribution will be available from 1 July 2025 and the mandatory employer contributions will start from 1 April 2026. The age for auto-enrolment will remain at 18.

• The Government’s annual contribution will drop by 50% from $521.43 to $260.72 per year from 1 July 2025 (this year’s contribution due next month will still be at the full rate).

• The annual contribution will also become means tested from 1 July 2025, so those earning over $180,000 (based on filed tax returns) will no longer receive the Government contribution.

So while there may be less going into our KiwiSaver’s from the Government, employers and employees are expected to cover this shortfall from the additional mandatory contributions. In order to afford these increases, many employers will need to factor this into their annual salary reviews, which is why it is being phased in over three years. Those businesses with many minimum wage employees and under 18’s will be hit the hardest by these changes. However, over time the intention is for the country to be better equipped with savings for the future.

Student Loans

The student loan repayment threshold will no longer adjust for inflation. This freeze means that as incomes rise with inflation, a larger portion of income may be subject to repayment, effectively increasing annual repayments by approximately $400 per year for many borrowers. The justification here is by emphasising the interest free nature of the loans, those who can afford to repay more should be doing so.

Family Assistance

Best Start Tax Credit

The Best Start payment, previously universally available in the first year of a child's life, will now be means-tested across all three years (rather than just years 2 & 3) from 1 April 2026.

The weekly payment will begin to reduce for families earning above $79,000 and cease entirely for families with incomes just over $97,000.

This change is projected to save $211 million and aims to better target support to lower-income families. Approximately 53,000 families will become ineligible, experiencing an average decrease of $49 per fortnight. An additional 9,000 families will receive reduced payments from this change.

Families with children born before 1 April 2026 will continue to receive the full payment during the first year.

Working for Families

The Working for Families scheme will also undergo a few changes from 1 April 2026, aimed at better supporting low and middle income families. The abatement threshold will increase from $42,700 to $44,900, but the rate at which payments decrease as income rises will slightly increase from 27% to 27.5%.

These adjustments mean families earning close to the new threshold could receive up to $23 more per fortnight, with an average increase of $14 per fortnight for around 142,000 families.

Rates Rebate Increase for SuperGold Cardholders

An expansion of the rate rebate scheme will benefit up to 66,000 additional SuperGold cardholders from July. The income abatement threshold to be eligible for the maximum rebate will be lifted from $31,510 to $45,000, and the maximum rebate will also rise from $790 to $805.

Tax - Getting It Right

Lastly, as part of this year’s budget, the Government is stepping up its efforts to ensure tax compliance, allocating an extra $35 million per year to Inland Revenue (IRD) to enhance its audit and enforcement capacity. This new funding builds on the current $27 million initiative, which has now been extended beyond its original expiry of mid-2025.

These investments are expected to yield strong returns estimated at $4 in extra tax revenue for every $1 spent in the 2025/26 year, rising to $8 per $1 in the 2027/28 year. This reflects a broader strategy to strengthen the integrity of the tax system and recover funds lost to underreporting or non-compliance.

In practice, IRD has already increased activity, with more than 3,600 audits completed in late 2024, being a 50% jump from the previous year. This resulted in over $600 million in additional tax assessments, with significant discrepancies found in the property sector alone, especially around developers and GST issues. Property-related enforcement accounted for over $150 million of this amount.

Kirstyn and Chui went to a Tax Roadshow last week and it was indicated that the areas and sectors under IRD’s microscope include:

• Hidden Economy (cash businesses)

• Property transactions

• Bright-line rule enforcement

• Personal services (hairdressers etc.)

• Lawyers, architects, medical and accountants

• Cryptocurrency trades

• Student loan and child support arrears

While at this stage they are simply using an “educational” marketing campaign approach, it is very clear with IRD’s analytical systems becoming more sophisticated, it will be easier for them to detect errors and non-compliance, whether intentional or not.

Tax Arrears

If your business is experiencing cashflow challenges and struggling to meet tax obligations, it’s crucial to act quickly. We can help you to set up a manageable repayment plan which can help minimise penalties and interest, while demonstrating a cooperative approach to compliance.

Other Tax Updates

Fringe Benefit Tax

IRD has released a discussion paper initiating a public consultation on modernising the FBT system. FBT was introduced in 1985 aimed at preventing the substitution of taxable wages with non-taxable benefits. Over time, the system has become increasingly complex for employers. The proposed changes aim to simplify compliance and address fairness concerns, particularly with common fringe benefits such as motor vehicles, unclassified benefits and entertainment. So while the exact tax implications of these changes are still unclear, it’s likely that any increase in tax will be camouflaged by promises of reduced compliance and administration costs.

Digital Services Tax (DST)

The Government has decided to shelve the proposed Digital Services Tax, which was initially planned to take effect this year. This decision results in a budgetary cost of $500 million, as the anticipated revenue from the DST was previously factored into the Government's forecasts. The withdrawal of the DST aligns with international discussions and developments in global tax frameworks.

More information and help available

If you’d like to read more details on this year’s Budget, you can do so on the Government’s Budget website here.

And as always, we are here to help with any questions you may have, so please get in touch if you need any assistance.