KiwiSaver cut, Best Start means-tested, $6.6b for business. Nicola Willis’ Budget aims for growth but warns of slow wages and high unemployment. Video \ Mark Mitchell
Budget 2025 is chock-full of new spending initiatives paid for in part by massive cuts and changes to pre-existing government programmes and schemes, including controversial adjustments to the pay equity regime.
In this Budget, the Government is investing an average of $1.3 billion per year in net new operating spending. That consists of $6.7b of new operating spending, supported by $5.3b in savings. There’s also $4b of net new capital spending.
The Budget takes months for the Government to compile and for decisions to be made. With 228 new spending initiatives and 116 savings, the summary provided on Budget Day is itself 88 pages long.
That’s a lot to take in. So here are 10 things you need to know about Budget 2025.
Let’s cut to the chase. Going into Budget 2025, one of the key questions on the minds of analysts was how much money the Government would save through its tightening-up of the pay equity scheme and changes to how the Government approached the funded sector.
The answer? Well, $12.8b previously set aside over the forecast period has been returned.
“Significant Budget savings have resulted from fixing Labour’s flawed pay-equity regime and removing an assumption that the Government would fully fund potential settlements involving non-Government employers,” Finance Minister Nicola Willis said in a statement.
“Taken together, these changes have increased the funding available for Budget 2025 by $11b operating over the forecast period and an additional $1.8b allocated for capital investment. This funding has been redirected to support investments in frontline health, education and other government services.”
Willis said funding would remain in contingency to settle future pay equity claims still to be raised by government employees. Future pay equity settlements will only be awarded where pay discrepancies are proven to be the result of sex-based discrimination, she said.
Over the entire forecast period, $21.4b in operating savings are expected from 116 initiatives. Willis said that without these savings, new initiatives would need to be funded from extra taxes or more borrowing, both of which would put New Zealand’s economic recovery at risk.
2. When do we get to surplus?
The Government has moved to using what it calls Obegalx – essentially this is the traditional deficit or surplus measure, but excluding the revenue and expenses of ACC (because it has a massive deficit).
Under that measure, New Zealand will return a surplus by 2029, but the current deficit is expected to expand before it gets better.
The 2025 forecast is $10.2b in deficit, which is better than what was projected back in December at the half-yearly update ($12.9b). However, it’s expected to worsen to a $12.1b deficit in 2026. While core Crown revenue is expected to pick up, partly reflecting economic activity, this is outpaced by the expected growth in core Crown expenses. Some of the factors affecting this are an ageing population lifting benefit expenses and borrowing costs rising.
In the 2029 year, the surplus is expected to be very thin – just $200 million. That’s even slimmer than the $1.9b surplus forecast in December.
However, while getting to a surplus under Obegalx is expected to be promoted by the Government, using the traditional Obegal measure, no surplus is found in the forecast years. In fact, New Zealand is still expected to have a $3b deficit in 2029.
3. Investment Boost
At the centre of the Government’s Budget is a new tax incentive called Investment Boost. It allows for businesses to deduct 20% of the cost of new assets immediately from their taxable income on top of normal depreciation. In short, that means a lower tax bill for businesses buying equipment.
The Government expects this will lift levels of business investment, with longer-run benefits including increasing the level of GDP by 1%, capital stock by 1.6% and wages by 1.5% over the next 20 years. At least half of those benefits are expected over the next five years.
Finance Minister Nicola Willis announced a new tax incentive called Investment Boost during today's Budget. Photo / Mark Mitchell
But it’s costly. Projections show that over the forecast period it will cost more than $6.6b – about $1.7b per year.
“Investment Boost starts today and applies to new assets purchased in New Zealand as well as new and used assets imported from overseas,” Willis said.
“It includes commercial buildings, but excludes land, residential buildings and assets already in use in New Zealand.”
There’s no cap on the value of eligible investments and all businesses can benefit.
“Now is the right time to support New Zealand’s economic recovery by making it easier for businesses to invest, hire more workers, pay them better and contribute more to our long-term prosperity,” Willis said.
4. Big KiwiSaver changes
The annual contributions the Government makes to KiwiSaver accounts will be halved. Currently, people saving in KiwiSaver can get $521 a year from the taxpayer. This has been cut to $260.72 a year.
For those earning $180,000 a year or more, there will be no Government contribution. These two changes are expected to save the Government $2.46b over four years.
Alongside those cuts, the Government will try to get KiwiSaver users to front up with more money themselves by lifting the default rate of employees and matching employer KiwiSaver contributions from 3% to 4%, although people will be able to opt to stay at 3% if they choose.
The new rate is going to be phased in, so from next year, it will go to 3.5% and then on April 2028, it will shift to 4%.
Younger people will also be able to contribute, with eligibility extended to 16- and 17-year-olds, who will get employer and Government contributions.
The Government is keen to personalise these changes and will be launching a calculator to show Kiwis what they will mean to people’s savings over their lifetime.
“Putting these changes together, the KiwiSaver balances of employees contributing at the new 4% default rate will grow faster than they do at the current 3% default rate, providing a larger balance at age 65 and a larger deposit when people use KiwiSaver to buy their first home,” Willis said.
5. Families affected
Around 142,000 families will get an extra $14 a fortnight on average under the Government’s latest Working for Families changes.
It’s also changing the abatement threshold for eligible families from $42,700 to $44,900 and the rate from 27% to 27.5%.
“The current threshold has been unchanged since 2018, despite inflation and wage growth. This means the scheme has become less effective at supporting low and middle-income families,” said Social Development Minister Louise Upston.
In the 2025 Budget around 142,000 families will get an extra $14 a fortnight on average under changes made for Working for Families. Photo / Mark Mitchell
She said families with incomes close to the new threshold will get greater additional payments (about $23 a fortnight).
The Government will partly fund changes by income-testing the first year of the Best Start tax credit (as it already does for the second and third year).
Upston said payments would start to diminish for families with an income of $79,000 and would cut off entirely when a family earns more than $97,000 per year. The changes will affect families of children born before April 1 next year.
Willis said the move to means-test Best Start was to ensure money went to families who needed it the most.
The Government is sending a message to parents: support your unemployed children, don’t expect the state to.
Under changes being announced today, parents – rather than the Government – will be responsible for unemployed 18- and 19-year-olds who can’t support themselves.
From July 2027, eligibility for Jobseeker Support and the Emergency Benefit will be tightened by introducing a parental assistance test for single 18- and 19-year-olds not in work or study. How much this test will be has yet to be disclosed.
“Young people can’t expect to go automatically on to a benefit and parents must be ready to help. This change strengthens financial incentives to enter employment, education and training,” said Upston.
She said young people who do require support from the Ministry of Social Development will still be able to access it.
“For instance, in some cases 18- and 19-year-olds may not be able to rely on parental support. If they meet all other relevant eligibility criteria, they will be able to access some supports.”
People under 20 who are married, in a civil union, or in a de facto relationship will not be subject to a parental assistance test.
7. Longer medicine prescriptions
The duration of a prescription will be extended from three months to 12 months under a change in this year’s Budget, expected to cost $91m over four years.
The move is predicted to save up to $105 per year in GP fees for patients who have historically had to get their doctor’s approval four times over a year to continue their prescriptions.
Expected to be available in the first quarter of next year, prescribers would be able to issue prescriptions for up to 12 months “if it is clinically appropriate and safe to do so”, Health Minister Simeon Brown said.
The allocated funding would cover the cost of additional medicines, given it was likely more would be dispensed as a result of the change.
The funding was part of a $7b increase in Government spending on health in Budget 2025, which included major upgrades to Nelson Hospital and a new emergency department in Wellington Hospital.
Budget 2025 is allocating around $2.5b to education, including hundreds of millions in what the Government is lauding as the “largest boost to learning support in a generation”.
Of that education total, about $380m will fund additional learning support and early intervention programmes for students who need additional help or have high and complex needs.
Funding has also been set aside to help schools and kura access specialists such as speech language therapists, educational psychologists and teacher aides focused on students with social, emotional and neurodiverse needs.
But it comes at a cost. The Government will disestablish the Kāhui Ako programme, with its $375m in funding over four years shifting to the learning support pot.
9. Specific industries benefit
There are a number of subsidies found in Budget 2025, including in private schools and tertiary education. There’s “co-investment” in gas fields and support for local journalism – though not for Radio New Zealand (RNZ).
Budget 2025 invests $15.7m over four years to increase the subsidy available for independent schools. It will see annual funding increase by 11% from $41.6m to $46.2m.
This is the first time the subsidy has increased since 2010, despite inflation and a growth in private schools’ roll of more than 5000 students. In the future, funding for private schools will automatically be considered annually, to accommodate roll growth.
“Independent schools are an important part of New Zealand’s education landscape, offering diversity and choice to parents,” said Associate Education Minister David Seymour. “If parents want to send their children to independent schools, they should be able to.
“Often parents are making big sacrifices because they would prefer to send their child to an independent school. They pay just as much tax as anyone else, yet the money that comes back for their kids’ education has effectively been getting smaller over the last 15 years.”
There is also $200m being set aside over four years as a tagged contingency for co-investment in new gas fields. The details are still being worked through, but there is a willingness for the Crown to take a commercial stake of up to 10-15% in gas field developments that feed into the domestic market in order to address sovereign risk.
“Natural gas will continue to be critical in delivering secure and affordable energy for New Zealanders for at least the next 20 years. We are already feeling the pain of constrained supply,” said Resources Minister Shane Jones.
Finance Minister Nicola Willis reading the 2025 Budget in the House. 22 May 2025. Photo / Mark Mitchell
He said the Government would not sit on the sidelines and watch industries or manufacturing dwindle because of energy security concerns.
“Talk is cheap but having skin in the game as a cornerstone investor in production demonstrates our own commitment to our future gas needs. We are looking to take a stake in the development of the next Pohokura, Kupe, Mangahewa or Tūrangi to accelerate the investment needed to support our energy system.”
Local journalism is expected to benefit through new funding for NZ on Air totalling $6.4m over four years. That will go towards council, community and court reporting through programmes such as Open Justice and Local Democracy Reporting.
But RNZ’s funding will be cut. After it saw increases in recent years, Budget 2025 reduces RNZ’s funding by about $18m over four years – equivalent to 7% of its annual Crown operating Budget of $67m.
“This saving initiative recognises that government-funded media must deliver the same efficiency and value-for-money as the rest of the public sector,” said Media Minister Paul Goldsmith.
“I expect RNZ to improve audience reach, trust, and transparency. I am confident the organisation can do so, while operating in a period of tightened fiscal constraint.”
Budget 2025 puts an additional $398m into tertiary education over four years, including to provide a 3% increase in tuition and training subsidies across many subjects from 2026. On top of that, there is a 1.75% lift in subsidies for Stem (Science, Technology, Engineering, and Maths) subjects.
More than $30m is being devoted to new military-style academies for recidivist youth, also known as bootcamps, even though the Government has not proved their impact on reoffending.
About $33m over four years will be used to fund future bootcamps, while a further $33m will be spent on safety and quality upgrades of the country’s youth justice residences.
About $16m would go towards ensuring the Government’s Young Serious Offender category – necessary in order to send youth to a bootcamp – was adopted in legislation.
Oranga Tamariki is currently running a 12-month bootcamp pilot in Palmerston North, set to conclude in July.
Many children’s advocates have warned against military-themed programmes to address youth crime. There have been several reoffending incidents over the pilot. There was also the tragic death of one of the 10 participants in a car accident.
Oranga Tamariki has repeatedly refused to release information on how many participants had reoffended while in the programme, citing privacy concerns.
Do you have questions about the Budget? Ask our experts – business editor at large Liam Dann, senior political correspondent Audrey Young and Wellington business editor Jenee Tibshraeny – in a Herald Premium online Q&A here at nzherald.co.nz at 9.30am, Friday, May 23.
Jamie Ensor is a political reporter in the NZ Herald Press Gallery team based at Parliament. He was previously a TV reporter and digital producer in the Newshub Press Gallery office. In 2025, he was a finalist for Political Journalist of the Year at the Voyager Media Awards.
