Budget 2025 Unpacked: Tax Breaks, KiwiSaver Shifts & What It Means for You

The New Zealand Government has unveiled Budget 2025, a fiscally restrained yet forward-looking plan aimed at boosting economic growth, strengthening public services, and supporting households amid ongoing global uncertainty. As with most budgets, it presents a mix of opportunities and trade-offs.

Overall, it represents a balanced yet focused strategy leading up to the next election. Here are the key takeaways:

Investment Boost for Business Growth

A standout feature of Budget 2025 is the introduction of the Investment Boost, a new tax incentive, introduced to encourage business investment that lifts wages and drives productivity.

Under this initiative, businesses can claim an immediate 20% tax deduction on the full cost of most assets that are first available for use on or after Budget Day (22 May 2025). This applies to a wide range of capital investments, including machinery, equipment, and technology upgrades.

However, the incentive excludes:

Assets that have previously been used in New Zealand;
Land though land improvements such as fencing may be eligible;
Assets that will be held as trading stock;
Residential buildings (dwellings);
Fixed-life intangible assets, such as patents;
Assets that are fully expensed under other rules, for example, assets valued below $1,000.

The real benefit lies in the cash flow savings generated in the first year of acquiring eligible assets—particularly valuable for small and medium-sized enterprises (SMEs) looking to modernise operations or expand capacity.

Targeted Cost-of-Living Support

Recognising the pressure on households, the Budget includes targeted support for low- to middle-income families, with measures aimed at easing the cost of living.

Specific measures include:

Lower family medical costs and better access to long-term medications by increasing the maximum prescription length from three months to twelve months.
Lifting the income threshold to enable up to 66,000 additional lower-income households with a SuperGold cardholder to get a rates rebate.
Better targeting Working for Families to low- and middle-income families with children by raising the family income threshold and increasing the abatement rate, so that 142,000 families receive an average of $14 more per fortnight.
Lower costs for around 115,000 teachers by covering their registration and practising certificate fees through to 2028, saving them up to $550

There will always be a balancing act when it comes to boosting support for low- to middle-income earners. While some argue it's a step in the right direction, critics contend that it falls short of addressing the rising costs of living.

KiwiSaver Reforms

Changes to KiwiSaver are set to make the scheme more sustainable and supportive of first-home buyers and retirement savers.

Key changes include:

The default rate of employee and employer contributions for KiwiSaver will rise from 3% of salary and wages to 4% in two steps. From 1 April 2026, the rate will go to 3.5%, and from 1 April 2028, it will go to 4%. These increases are being phased in over a three-year period to help workers and employers plan ahead.
Employees will be able to temporarily opt down to the current 3% rate if they choose and still be matched at that rate by their employer. This option is available for those who feel they are unable to afford the increased contribution for a time.
The government will extend the government contribution to 16- and 17-year-olds from 1 July 2025 and extend employer matching to 16- and 17-year-olds from 1 April 2026.
To make the scheme more sustainable, the annual government contribution will be halved to 25 cents for each dollar a member contributes each year, up to a maximum of $260.72 from 1 July 2025. Members with an income of more than $180,000 will no longer receive the government contribution from 1 July 2025.

While it's disappointing that government contributions are being reduced, placing the burden on employers, it's heartening to see the extension of KiwiSaver to 16- and 17-year-olds, encouraging them to start saving early in their working lives.

Public Services and Infrastructure

Significant investments have been earmarked for:

Health: Funding to reduce wait times and improve hospital infrastructure.
Education: Over $700 million for school upgrades and new builds.
Law and Order: Additional resources for police and justice services.
Defence: Enhanced funding to modernize the Defence Force in response to a more complex global environment
The Government is committing over $1 billion to hospital infrastructure and other critical projects, reinforcing its focus on long-term resilience and service delivery.

Additional Compliance Funding for Inland Revenue

The Government has committed an additional $35 million per annum to Inland Revenue (IR) to enhance tax compliance and debt management efforts. This builds on:

Budget 2024: $29 million allocated, with IR providing an update on outcomes back in April.
Budget 2022: $26.5 million per annum originally allocated to manage COVID-19 impacts - now made permanent in Budget 2025.

The additional investment is expected to yield a 4 to 1 return in 2025/26, increasing to 8 to 1 from 2026/27.

Our Views:

The Investment Boost is a welcome surprise that offers immediate benefits that support SMEs to modernise and grow. As KiwiSaver contributions and public investments undergo transformation, the government is striking a balance between innovation and fiscal sustainability. While the KiwiSaver reforms shift more responsibility to employers, the extension of KiwiSaver to younger workers encourages early financial planning, and as a nation, we need to save more for our retirements!

We’ll be keeping a close eye on how these initiatives unfold and whether they truly deliver on their promise to drive growth for both SMEs and the broader economy.