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
Analysis by Jenée Tibshraeny
Wellington Business Editor, Jenée Tibshraeny, covers business, the economy and public policy for the Business Herald.
Finance Minister Nicola Willis has put a “true blue” stamp on Budget 2025.
She is unapologetically doing what the National-led Government was elected to do – empower businesses and require people to pay their own way more than they would under a left-leaning government.
The biggest-ticket item, after morespending on health, is tax relief for businesses that invest in machinery, tools and equipment.
Businesses will be able to deduct 20% of a new asset’s value from that year’s taxable income, on top of normal depreciation. This is expected to save businesses $6.4 billion over the four years to June 2029.
New spending is largely being funded by the Government’s surprise decision to tighten its pay equity regime, which was proving to be much more expensive than expected.
About 180,000 workers in female-dominated sectors will receive pay rises estimated to be $12.8b lower over the forecast period than would have been the case under the old law.
Furthermore, a $2.5b saving (over four years) is coming from the Government halving the contribution it makes to KiwiSaver members to a maximum of $261 a year, and scrapping the contribution altogether for members who earn more than $180,000 a year.
Willis will also push people to do more to save for their retirements, lifting the default KiwiSaver contribution rate for employees and employers from 3% to 3.5% from April next year, and 4% from April 2028.
She will also require employers to make contributions to employees aged 16 and 17 who contribute to the scheme, and extend the Government contribution to this cohort.
The Treasury believes employers will offset 80% of the cost of higher contributions by keeping wages lower than would otherwise have been the case.
However, the changes will take KiwiSaver a small step closer to the Australian regime, which requires employers and employees to make much larger contributions.
While Willis has coined the Budget a “growth” Budget, the centrepiece tax support for businesses is expected to lift gross domestic product (GDP) by only 1% and wages by 1.5% over 20 years, with half these gains expected in the next five years.
Taking a step back, and factoring in the raft of international factors that affect the economy, the Treasury sees GDP growing more slowly than it did when it last published forecasts in December. It also forecasts the unemployment rate to be higher.
The deteriorating economy means that even though Willis will increase spending by less than signalled in December, getting the books back to surplus will take longer.
There is no return to surplus in sight, with the operating balance before gains and losses (Obegal) deficit shrinking from $14.7b in 2024-25 to $3b in 2028-29.
Finance Minister Nicola Willis unveils her second Budget. / Mark Mitchell
Before the 2023 election, National campaigned on having the books out of the red by this point.
It also committed to reducing net core Crown debt towards 40% of GDP. However, debt-to-GDP is now expected to rise from 42.7% in 2024-25 to a peak of 46% in 2027-28.
Because the Government confirmed, before the Budget, the amount by which it would increase its spending ($1.3b for operational and $4b for capital spending), the Treasury’s forecast bond issuance programme aligns with market expectations.
The Treasury will issue $132b of bonds in the four years to June 2029 - $4b more than forecast in December (when it made a hefty increase to its bond issuance programme).
Coming back to the politics, Willis has given National’s coalition partners, New Zealand First and Act, some money to play with.
The Government will invest $200 million over four years in a new gas field and increase private school funding by 11%.
Looking to Budget 2026, Willis left her spending allowances unchanged.
The question will be whether she finds another cost blowout, like the pay equity regime, to take the knife to.
The Accident Compensation Corporation could be in the firing line.
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 Jenée Tibshraeny - in a Herald Premium online Q&A here at nzherald.co.nz at 9.30am, Friday, May 23.
