Budget 2025 – The Growth Budget

Date

22.05.25

The Budget 2025, labelled “the Growth Budget”, has been underscored by careful spending, and as Finance Minister Nicola Willis stated on 29^th April 2025, it’s no “lolly scramble”. The Government halved its operating allowance from $2.4 billion to $1.3 billion, a reflection of recent international economic turbulence, with the intention of being a “responsible Budget” with new spending initiatives stated to being limited to a focus on health, education, law and order, defence, along with a “small number of critical social investments”. We don’t think people are looking for a lolly scramble, rather some real and meaningful investment into our community’s health and wellbeing and vital infrastructure. Does Budget 2025 achieve this?

Our healthcare system is increasingly under enormous pressure. We need more hospitals, doctors, midwives and specialists. More funding for cancer treatments. Both sides of the health sector are struggling. GPs are under significant pressure with staffing shortages, and on the other side of the coin, it is increasingly difficult to get registered with a local GP. This in turn puts emergency waiting rooms under more pressure. One estimate we have seen is that 60% of GPs are going to retire in the next 10 years so incentives are needed for the next cohort of doctors. Chartered Accountants of Australia and New Zealand (CAANZ) have proposed ideas like region-specific incentives such as writing off student loans for GPs to work in specific regions.

Investment is needed into our health and wellbeing, which filters through to promoting economic growth by having healthy, functioning taxpayers. Investing into our health only has good outcomes.

Encouraging growth through investment

The Government is wanting to promote foreign investment across a variety of sectors in New Zealand to promote growth. A number of tax changes have been flagged, one of which includes proposed FIF changes intended to remove disincentives for migrants with significant overseas investments to relocate to New Zealand. Because FIF tax is imposed prior to realisation on deemed rather than actual income, the current rules may discourage non-residents with portfolio interests overseas from migrating to New Zealand. The Government is exploring introducing a Revenue account calculation or alternatively a deferral method, rather than taxing unrealised gains from foreign investment, along with increasing the current $50,000 de minimis threshold. We anticipate these proposals progressing.

How is the Government funding this year’s Budget?

Pay Equity Legislation

The recent “Equal Pay Act” that was swiftly pushed through Parliament under urgency to “provide legal certainty on claims” also resulted in the discontinuation of 33 current pay equity claims involving hundreds of workers. While Workplace Relations and Safety Minister Brooke van Velden has denied Budget considerations were behind the changes, rather the need for legal clarity, Prime Minister Christopher Luxon confirmed the new pay equity legislation could save the government “billions of dollars”. Money has been set aside to address claims under the new legislation; however, the threshold has been raised by the new legislation making it harder to prove work has been historically undervalued.

Being rushed through with urgency without public consultation, only two weeks before the Budget has likely drawn more attention to the changes than the Government would have liked and may not be remembered favourably come election time.

As we have said before, rushed legislation is bad legislation. Legislation without consultation is even worse, regardless of your perspective of the topic. Remember the Foreshore and Seabed debacle?

Inland Revenue audit activity

Inland Revenue has increased its debt collection and audit activity. The 2024 Budget invested $29 million per year (for four years and a total of $116 million) to increase compliance activities. Audits, screening and voluntary disclosures have added $859 million to tax revenue in the last 12 months. Inland Revenue (IR) has highlighted property and construction sectors to be a focus of compliance activity in the years ahead. From July to December 2024, IR opened 50% more audits that for the same time the previous year resulting in a further $600 million of additional tax being found that should have been declared. Notably, half of that figure came from less than 10 audits. How much of this undeclared tax has actually been collected is unclear, as IR wrote off $83.9 million related to completed liquidations (on application by IR). However, it is clear that IR is pushing forward with its targeted audit and compliance focus.

Borrowing just a little bit more

New Zealand’s economic position is improving. However, the Government still anticipates a shortfall in the forecast period (four years). Combined with total capital investments of $51.2 billion, the accumulated residual cash deficits are predicted to total $62.3 billion across the forecast period. This shortfall is largely funded through additional borrowing, meaning net core Crown debt is forecast to increase from $175.5 billion in 2023/24 to reach $238.5 billion by 2028/29. This is $5.3 billion higher than forecast at the Half Year Update 2024.

KiwiSaver changes

Finance Minister Nicole Willis has announced that the Government will halve the value of the Government KiwiSaver contribution, with 25 cents for each dollar a person contributes each year up to a maximum of $260.72. The contribution will only be available to KiwiSaver members who earn less than $180,000 per annum. The Government has forecast this will save $2.3 billion over the next four years. This change applies from 1 July 2025, but does not affect the government contribution for the current year that will be paid out in July and August of this year.

The Growth Budget breakdown

Without further ado, here are some Budget 2025 highlights:

Investment Boost

The Government has announced the introduction of “Investment Boost”, a new deduction available to businesses when they purchase capital assets. Businesses will be able to deduct 20% of the cost of new assets in the year of purchase of the asset, on top of the standard depreciation deduction. The deduction excludes assets previously used in New Zealand, land, trading stock, residential buildings, fixed life intangible assets and assets fully expensed under other rules. However, Investment Boost will encompass certain assets that are not depreciable property such as improvements to farmland, planting of listed horticultural plants, improvements to aquacultural business and improvements to forestry land, along with certain kinds of petroleum development expenditure and mineral mining development expenditure.

KiwiSaver

Along with the reduction in government contributions, Finance Minister Nicola Willis has announced an increase in default contribution rates for both employers and employees, from 3% to 3.5%. This change will apply from 1 April 2026. The default rate will then increase to 4% from 1 April 2028. Individuals will have the option of applying to Inland Revenue to temporarily opt-down to a 3% contribution rate for up to 12 months in certain circumstances (e.g. hardship).

Healthcare

After-hours health care

Health Minister Simeon Brown announced on 18^th May 2025 that the Government has committed new funding of $164m over four years to urgent and after-hours healthcare in the regions with a number of new 24-hours services and urgent care clinics planned for Counties Manukau, Whangārei, Palmerston North, Tauranga and Dunedin and “new and extended” daytime services for other centres including Lower Hutt, Invercargill and Timaru.

The difficulties with being able to get an appointment with a GP are being addressed by the introduction of a new 24/7 health service with access to video consultations with NZ registered clinicians including GPs and nurse practitioners who will also be able to issue prescriptions and make referrals for blood tests. This is a practical option for relieving strain on emergency departments and allowing faster access to general healthcare and advice.

This a positive start to addressing the pressure that urgent care has increasingly been under, however, whether it is enough funding is questionable. And a large part of the pressure relates to the staffing shortages we continue to see. Introducing incentives to retain GPs in regional parts of New Zealand may help combat this pressure. One suggestion we have seen is to introduce incentives for GPs to work in the regions (such as writing off student debt).

Increasing the healthcare workforce

This funding is to operate alongside investment announced by Health Minister Simeon Brown on 3^rd March 2025 to help bring 100 overseas-trained doctors into the primary care workforce; incentives for primary care to recruit up to 400 graduate registered nurses annually for 5 years; a new 24/7 digital service to access online medical appointments; along with a $285 million “uplift” for general practice.

Cancer treatment

A “pre-commitment” to the Budget announced on 24^th June 2024 included $604 million over four years in extra Pharmac funding being allocated to cover up to 54 new medicines. This includes 26 cancer treatments.

In pre-election promises, then opposition leader, Christopher Luxon had promised to lower New Zealand’s bowel screening age from 60 to match Australia at 45. Off to a slow start, the Government has only recently announced plans on 6^th March 2025 to lower the age progressively from 60 to 58 in a first step to aligning with Australia. However, of concern is the redirection of funds that were previously allocated to lower the age for Māori and Pacific people (who suffer disproportionately high bowel cancer death rates). In December 2024, the Government had announced the end of a pilot programme allowing for Māori and Pacific people to access bowl cancer screening from the age of 50. We know that early screening is vital for ensuring a better chance of successful treatment. However, we question whether abandoning targeted screening for high-risk groups is the right sacrifice.

Education

School attendance

School attendance is a focus with a $140 million package focussed on improving attendance over the next four years, announced Associate Education Minister David Seymour on 14^th May 2025. $123 million for a new attendance service and $17 million to support and strengthen frontline attendance services with access to a new case management system, data monitoring and contracts that are more closely monitored. The new model addresses 2024 ERO report recommendations for:

- Having effective targeted supports in place to address chronic absence

- Increasing the focus on retaining students on their return

- Putting in place an efficient and effective model

Extra maths help

Nearly $100 million over four years is being invested for children needing extra help with maths by early intervention and targeted support, with $4 million of that going toward development and implementation of a new Maths Check for lower primary students. $56 million will fund the equivalent of 143 new full-time maths intervention teachers for children in years 0-6 who are not achieving at curriculum level and the remaining $40 million will fund maths tutoring for up to 34,000 year 7-8 students each year from Term 1 2026. These initiatives will also be introduced in te reo Māori ensuring Māori immersion students have the same access to resources and support.

Infrastructure

Housing

The Government is partnering with East Coast Iwi collective Toitū Tairāwhiti in a $75 million development intending to deliver 150 affordable rentals in Gisborne, scheduled to be completed by the end of December 2026 as announced by Associate Housing Minster Tama Potaka on 15^th May 2025. The Government is contributing $49 million, and the Iwi collective is contributing the rest. This development is part of the Government’s wider $200 million commitment (announced in February 2025) to deliver 400 affordable rental home for Māori across key regions. The homes will be manufactured off-site and then transported to site.

Rail Infrastructure

$604.4 million has been allocated to rail infrastructure for both commuters and freight announced by Rail Minster Winston Peters and Transport Minister Chris Bishop on 20^th May 2025. $461 million for maintenance and renewal of the national rail freight network and $143.6 million for upgrades to the Auckland and Wellington metropolitan networks.

Southern rail gets a boost with up to $8.2 million being allocated for part of a vital rail link between Port Chalmers and Mosgiel, which is to be the home of a private equity inland freight port, the Southern Link Logistics Hub. The project is a joint venture between Port Otago in partnership with Dynes Transport who have been negotiating with the Government and KiwiRail. This investment coincides with the official reopening of the Hillside Workshops in Dunedin which undertaken partly with funding from the Budget 2021. The redevelopments involved adding a new mechanical workshop along with new wagon assembly facilities.

Social Investment Initiatives

The Government has promised $275 million to social investment initiatives. This includes $190 million for a new Social Investment Fund. The fund will invest in at least 20 initiatives over the next year with the first three initiatives being:

- Autism NZ – early screening and intervention programme that provides services and support for family/ whānau, caregivers and professions (50 families)

- Ka Puta Ka Ora Emerge Aotearoa – tackling youth offending and truancy (80 families each year)

- He Piringa Whare – Supports 130 families at a time to deliver stable housing, education, training employment and other services

The Government intends funding to be transferred from current social services to the Social Investment Fund over the next three years. Part of the investment approach is the use of data to measure whether a contracted provider of social services is actually making a difference and tracking the fund’s impact.

As part of the $275 million social investment, the Budget also allocates:

- $20 million for strengthening parenting in the first 2,000 days of a child’s life

- $25 million for initiatives to help prevent children and vulnerable adults from entering state care. This is part of the Crown’s response to the Royal Commission of Inquiry into Historical Abuse in State Care.

Redress for abuse survivors

While the Government has decided not to set up a new compensation scheme for survivors of abuse in State care, despite recommendations of the Royal Commission and the Redress Design Group, $774 million has been committed to improving the current system. This was announced by Lead Coordination Minister for the Government’s Response to the Royal Commission’s Report into Historical Abuse in State Care and in the Care of Faith-based Institutions, Erica Stanford on 9^th May 2025. As we go to print, arguments still swirl around this decision and the implications. Arguably, the Government has ducked for cover, but our sources indicated the previous Government pushed it down the track too. Successive failings by successive agencies are shameful for everyone.

New Zealand Film and TV production

Economic Growth Minister Nicola Willis (wearing a different hat) announced on 16^th May 2025, a budget increase of $577 million increase across this year and the next four years to the International Screen Production Rebate scheme has the intention of bringing investment, jobs and income to New Zealand by attracting international productions here. Eligible productions can access a 20% rebate on qualifying expenditure.

Keeping drugs out of our country

Customs Minister Casey Costello announced on 10^th May 2025, $35 million over four years to Customs to increase the number of staff at the border along with increasing Customs technological capacity with a focus on:

- Targeting lower-quantity, higher frequency drug smuggling through international mail or airports

- Improving supply chain security and targeting “trusted insiders” who use links to help smuggle drugs

- Extending Customs presence overseas with an additional liaison officer to support investigations and information sharing with global enforcement and border partners.

Safer Communities

Māori Wardens of New Zealand are getting support with an additional $1.5 million per annum of funding, as announced by Māori Development Minister Tama Potaka, Associate Police Minister Casey Costello and Deputy Prime Minister Winston Peters on 17^th May 2025. This extra funding brings the total to $2.7m per annum. Māori Wardens provide support to rangatahi (youth) through training programmes, whānau support, helping prevent truancy, providing food and assistance in emergency events (such as COVID-19 lockdowns and recent flooding events), providing security and traffic management services along with a number of other support services.

Foreign Investments

Finance Minister Nicola Willis announced on 19^th May 2025 that the Budget allocates $75 million over the next four years to encourage foreign investment in New Zealand infrastructure by changing the rules that may deter investment (subject to consultation on the details). A further $10 million to defer tax liability of some employee share schemes to help startups and unlisted companies.

Was the tax on Charities pulled from the Budget at the last minute?

Introducing a “charities tax” was anticipated by the Government to be an avenue to provide funds. The Inland Revenue published an Officials’ Issues Paper, ‘Taxation and the not-for-profit sector’ on 24^th February 2025, that referred to the tax and social policy work programme as “simplifying tax rules and reducing compliance costs”. Our view was it would in reality add unnecessary complexity, increase compliance costs and reduce resources for the social support many charities provide at a time when charities are increasingly needed to fill growing gaps.

There was a strong view that the Government were proposing to introduce changes to taxing charities in the 2025 Budget, although others thought it may have just been testing the waters. Either way, there is a reprieve for charities with the Government plans pushed back at least a year due to the acknowledged complexities highlighted by the more than 900 submissions. This is not the end of the matter, rather a pause. We believe the Government and Inland Revenue had underestimated the complex variety of charities and structures within the charitable sector.

Some of the issues we see include the following:

- What is “business” income?

Defining what is “business” income. The “intention” to make a profit can be difficult enough with tax paying entities and persons, but more complicated still where the entity being considered does not “intend” to have a profit for profits sake, rather has an “intention” to generate funds in one sector of its organisation to finance philanthropic operations in another.

- What is “income”?

It is the nature of charities that profit is not the goal, rather their charitable objectives are the purpose for existing. When the Officials’ Issues Paper tried to carve out (let’s be frank here) the loss divisions of each charity, yet proposed to tax the divisions that made a profit, the paper lost focus and any support it might have garnered from many quarters.

- What is “unrelated” income?

What initially appears as an “unrelated business” (and therefore ‘should’ be taxable) can often align with religious, charitable or community focused objectives. Often each service within an organisation connects with the charity’s mission. This can make it difficult to separate income generation from a charity’s charitable purpose, even if those (or similar) services are offered by tax paying entities. Often within a charitable entity no income is ‘unrelated” income. It all relates to its charitable objects and mission either directly or indirectly due to the symbiotic relationships within their structure.

- “Unrelated business income”

Comparing a charitable organisation to a commercial enterprise was unrealistic as there is no clear distinction between “business” and “non-business”, “unrelated” and “related”, or “passive” and “active” income. These classifications rarely align with the operational and financial realities of charitable organisations. It is our opinion that the proposed tax changes would have over-corrected any perceived tax advantages of charitable status. For example, by taxing “unrelated business income” while allowing passive income (received post tax or with imputation credits) to remain tax-free, meant there could be no offset of tax credits against any tax liability.

Interpretation Statement 24/08 (issued 16^th Sept 2024), used in part as a base for the Officials’ Issues Paper, oversimplified the distinction between business and non-business activities and assumed businesses within a charity always intended to, and in fact did, make a profit – hence should be taxed. In reality, often businesses run by charities aim to break even or even run at a loss. Even where they generate surpluses this is solely to support their broader charitable work.

- Commercial Investments

Charities are unable to access the tax paid on direct or indirect corporate investments like tax paying entities. While an individual may pay tax on their investments, it is partly paid by crediting them with the tax paid by their Company. Tax exempt entities such as charities, do not have the same access to benefit from tax credits from dividends, so the tax differential is not as wide as some believe. Many charities are trusts, so would be taxed immediately at 39%, rather than the income being sheltered within a corporate structure at 28% and drip feed out when required.

- Other tax obligations

Charities already face significant tax compliance burdens including GST, payroll, KiwiSaver and a complex FBT regime. Some Tier 1 organisations also incur high accounting compliance costs to meet IFRS obligations and consolidate financial reporting across nationwide operations. Yet as a Tier 1 organisation, the target for taxation, a potentially significant portion of the costs may not have been tax deductible.

As government financial support declines, charities must step in to meet societal needs, and this in the face of often financially constrained environments with declining donations and volunteers.

Summary

Budget 2025 aims for balanced spending, focussing on the must haves, not the wants. Growing concerns regarding workforce shortages and strained services in healthcare are in focus. Whether it is enough to address looming GP shortages remains to be seen, but it is a start. The recently rushed through pay equity legislation halting 33 claims may have provided essential funding for this budget, however, it may prove to be a step too far and a future election gamble with the public perceiving the rushed process as dubious.

The Government’s financial restraint will be essential for riding out the current international economic turbulence. It remains to be seen whether the 2025 “responsible Budget” goes far enough to stimulate the “growth” intended. Whether it brings in new financial investment; whether it brings Kiwi’s home or attracts new migrants with skills that enhance and benefit the community at all levels; and whether it lifts more people out of entrenched or new negative statistics will be the great debate. If it does not, then there may another type of scramble (and it will not be for lollies).

If you would like to read key documents for Budget 2025, please click on the links below:

- Budget at a Glance 2025

- Fiscal Strategy Report 2025

- Budget Policy Statement 2025

If you have any questions on how the Budget 2025 may impact you or your business, you are welcome to call and discuss your queries with us.

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