New Zealand Budget 2025

Dubbed ‘the Growth Budget’ by the Government, Budget 2025 addresses immediate economic and fiscal challenges, and navigates a path back to surplus and growth over the next four years.

The Budget delivers good news for business by betting on a new Investment Boost tax incentive designed to encourage New Zealand’s productivity performance, and it sees infrastructure investment that includes hospitals and schools - which may provide some relief for the construction sector – as well as our road and rail networks.

KPMG’s team of experts have analysed four key areas, focusing in particular on what the Investment Boost and KiwiSaver changes mean for Kiwi businesses. Our commentary includes short podcasts which were recorded earlier this month, accompanied by timely updates from today's announcements.

Health & disability $2b

Average annual operating expenditure increase (net of reprioritisation), to meet demand and cost pressures. $255m of this is for disability support services. Targeted initiatives for Pharmac and Primary Care Tactical Action Plan.

Business tax relief $1.66b

The ‘Investment Boost’ will allow businesses to deduct 20% of a new assets’ value from that year’s taxable income.

Education $381m

Average annual operating expenditure increase (net of reprioritisation), approx. $100m of which is for tertiary education, and the remainder focused on learning support and funding new schools and classrooms.

Law & order $263m

Average annual operating expenditure increase (net of reprioritisation). Includes $480m over 4 years for frontline policing, $472m to manage prison growth, $246m to reduce court delays.

Infrastructure $6.8b

Including $1b for health, $734m for education, $1b for defence, $460m for rail upgrades and a commitment to Christchurch Men’s Prison as a PPP. Thin Capitalisation tax changes for infrastructure investors also announced.

KiwiSaver 4%, 1/2

Default employer and employee contributions rate will rise to 4% (3.5% from 1 April 2026 and 4% from 1 April 2028). Government’s contribution will drop by a half to $260.72. It will also no longer be available to those earning more than $180,000. Employer and government contributions will be available to 16 and 17 year olds.

Defence & foreign affairs $660m

To improve core Defence Force capabilities across air, sea, land and cyberspace.

Tax & Kiwisaver

The headline tax (and tax adjacent) changes in this year’s Budget are:

A new 20% “investment boost” tax deduction for new business assets. This will mean that acquisitions of new qualifying business assets, from 22 May 2025, will receive an upfront 20% tax deduction. This will be in addition to any tax depreciation that can be claimed (although in the year of acquisition, the cost base for tax deprecation purposes will be reduced by the 20% investment boost allowance).
Changes to key KiwiSaver settings, including increases to both employer and employee minimum contribution rates and reductions in Government contributions. The increase in contribution rates will need to be factored in by both employees and employers, including as part of future wage negotiations.

20% immediate tax deduction for business and KiwiSaver changes.

Infrastructure

Budget 2025 will provide some relief to the construction sector. We were slightly surprised by the scale of rail investment and we expect some disappointment that the Courts PPP doesn't seem to feature.

The Investment Boost announcement will also be of interest to many infrastructure businesses and will hopefully encourage more investment in assets and technology.

Podcast released 15 May: In early May, Stephanie Ward and Emma White caught up to talk about what the delivery of infrastructure initiatives might look like on a ‘no frills’ budget. Steph and Emma talk public/private partnerships, water, competition, risk and standardisation.

Budget 2025 announces dedicated funding for Social Investment of $275m over the next four years to strengthen the role of the Social Investment Agency and a set of new initiatives. But this was not the social investment budget that was signalled last year, with the Government opting for restraint and business targeted investment.

Health, disability and education were winners in the social sector with about $2b in new funding over the four years with the majority of this to respond to growing demand and cost pressures. There was a particular focus on improving and expanding learning support in schools.

Podcast released 13 May: Kaapua Smith, Stephanie Ward and James Poskitt explore how we can get the best out of limited resources and achieve a balance between short term outcomes and really driving change now, while also setting the system up for long term success.

Digitising Government

Government agencies will be feeling the impacts of savings measures and will soon be looking for ways to boost productivity and improve the efficiency of service delivery.

This will require coming up with creative ways to redirect baseline budgets toward affordable and impactful technology solutions.

Podcast released 20 May: Tony Evans, Al Evans, and Jeff McLuckie reflect on the key digital areas raised at last year’s budget, how the public sector has responded, and where the opportunities are in 2025. They unpack data sovereignty and KPMG’s recent findings on the attitudes towards AI in New Zealand.