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
Labour claims an 18-year-old would be $66,000 worse off in retirement under the Government’s KiwiSaver subsidy changes announced today.
The figure is based on the Government’s cuts to KiwiSaver subsidies in the Budget, which compound over someone’s lifetime. The Government’s own modelling shows that its changes to contribution rates would make savers better off, but only if they agree to save money themselves.
Finance Minister Nicola Willis’ second Budget will halve its contribution to people’s KiwiSaver accounts. Currently, people saving in KiwiSaver can get $521 a year from the taxpayer, this has been cut down to just $260.72.
The Government’s KiwiSaver contribution will be means-tested for people earning $180,000 a year. Those two changes will save the Government $2.46b over four years. Other savings from KiwiSaver will save a further $540 million over four years.
Finance Minister Nicola Willis with senior Cabinet colleagues after announcing today's Budget. Photo / Mark Mitchell
The Best Start payment, which offers new parents a weekly payment for their children, will now be means-tested for the entire three years of the payment. Currently, all parents get the payment in the first year after having a child – the payment will now be means-tested for all three years, saving $211m.
Labour leader Chris Hipkins took aim at the KiwiSaver moves in his speech to Parliament.
“If there is one message New Zealanders have had loud and clear, it’s that they [the Government] cannot be trusted when it comes to the national treasure that is our KiwiSaver.”
He claimed an 18-year-old would be $66,000 worse off in their retirement as a result of the changes.
“It is growth in all the wrong places,” Hipkins said of the so-called Growth Budget.
Prime Minister Christopher Luxon hit back, spending much of his Budget speech attacking the previous Government.
“National backs growth and I’m telling you, Labour wants to tax it,” Luxon told the House.
Luxon spoke of cost-of-living support while referencing the previous Labour Government, saying it led to an economy that punished Kiwis.
Finance Minister Nicola Willis reading the 2025 Budget in the House. Photo / Mark Mitchell
Deeming his Government the “Government of the workers”, Luxon said wages had grown more under his watch.
He noted there was more work to do, citing the Working for Families changes, which would give about $14 per fortnight to about 140,000 families.
Ending his speech, Luxon said it had been another “excellent Budget from Nicola Willis”, noting the Government had been compelled to make tough choices like all Kiwi families.
“Budget 2025 is another excellent step in that direction and all part of getting New Zealand back on track.”
$6.6b business boost
Willis also announced a $6.6 billion incentive in today’s Budget.
The business incentive will allow firms to deduct 20% of a new productive asset’s value from their tax return.
But any return on that investment might be a long time coming for New Zealand‘s workers. While Treasury advised that the incentive would ultimately be good for growth, it revised up its unemployment forecast and revised down its wage forecast, prepping New Zealanders for another year with the unemployment rate over 5%.
Willis also announced how the tax incentive, along with other parts of the Budget, would be paid for, revealing the amount of money the Government would be saving by reforms to the pay equity regime: $12.8b over four years (a figure that includes changes to how the Government approaches the funded sector).
The grand total of cuts in the Budget was $21.4b over four years, meaning more than half of the cuts in the Budget have come from changes to pay equity.
Willis said pay equity costs had “blown out”, adding that in 2020, the Labour Government’s pay equity regime was expected to cost just $3.7b over the forecast period.
In the Budget lock-up, Willis launched a broadside on Labour, alleging the cost of the blowout was “hidden” from the public by the last Government in order to preserve commercially sensitive negotiations.
How much money Willis has left for new pay equity is also sensitive, so the Government has not revealed how much it has set aside to fund claims brought under the new regime.
Elsewhere, the Government announced a sweep of initiatives to hack back the growth of Crown expenses – cuts that are even larger than last year’s.
Including the pay equity savings, the Government is “saving” $4.8b a year from cuts. Last year, the equivalent figure was $3.8b – or $4.4b if you include the Emissions Trading Scheme.
Student loan borrowers will also start paying more, with the Government freezing the repayment threshold, which usually (though not always) rises with inflation, saving $64m. Every dollar a student loan borrower earns over $24,128 will pay 12 cents off their student loan.
Investment boost
Treasury estimates the centrepiece of the Budget, the business incentive changes, will actually lift New Zealand‘s growth, increasing GDP by 1% and wages by 1.5% – but that lift takes place over 20 years (although half the growth occurs in the next five years).
The new rules will begin today, passing under urgency.
The effect of the tax changes will be to encourage businesses to bring forward investment, stimulating the economy.
Willis quoted from a Regulatory Impact Statement on the change that a large amount of the benefit of the credit would flow through to workers, although Treasury’s forecasts show that this has not been enough to stop it from revising work-related changes.
KiwiSaver reforms – Government cuts contribution, asks savers to raise theirs
Alongside the cuts to KiwiSaver, the Government will try to get KiwiSaver users to front up more money themselves, lifting the default rate of employee and matching employer KiwiSaver contributions from 3 % to 4%. This will be optional, people can opt to stay at 3% if they choose.
The new rate will be phased in. Next year it will go to 3.5% and on April 1, 2028, it will go to 4%.
Younger people will be able to contribute with eligibility extended to 16- and 17-year-olds, who will be able to get employer and Government contributions.
The Government is keen to personalise these changes and has launched a calculator on the Treasury website that calculates what they will mean to people’s savings over their lifetime.
Cost of living support: Working for Families changes – $14 a fortnight
Social Development Minister Louise Upston announced a tweak to Working for Families tax credits.
The abatement threshold – the level at which the tax credit is slowly withdrawn – will be lifted from $42,700 to $44,900.
This means people will keep more of their tax credits as their income from work rises with wage inflation. The increase is worth $14 a fortnight on average and up to $23 a fortnight. The cost of the change is $205m over four years.
However, the Government is also raising the abatement rate from 27% to 27.5%. This means that when people’s incomes rise, they will lose their tax credits faster than before. It marks a steady increase to the abatement rate over successive governments. Not long ago, it was closer to 20%.
Social Development Louise Upston. Photo / Mark Mitchell
Rate relief to superannuitants
More SuperGold cardholders will also be able to get rates relief.
The Government is lifting the threshold at which SuperGold cardholders are eligible to receive rates relief from $31,510 to $45,000 – about the rate for a couple receiving superannuation. The maximum rebate will increase from $760 to $805.
The changes mean every SuperGold cardholder whose only income is New Zealand Superannuation and has rates higher than $2000 will be eligible for the full rebate. SuperGold cardholders with incomes higher than $45,000 may get a smaller rebate.
More SuperGold cardholders will also be able to get rates relief.
Grappling with the cost of the crime crackdown – $400m for prisons
The Government has had to top up the Corrections budget by $393m over four years to cope with a prison population of up to 10,860 prisoners by June 30, 2026.
The Government is spending $448m more each year on Corrections than in the last full year of the Labour Government.
This is the second year in a row the Government has had to top up Corrections with funding for the increased prison population.
Upston also announced that parents of unemployed 18- and 19-year-olds will have to do more before their children can get a Jobseeker benefit.
The Government will introduce a “parental assistance test” before a child is allowed a benefit, which takes into account an unemployed teenager’s parents.
“Young people can’t expect to go automatically on to a benefit and parents must be ready to help,” Upston said.
Signs of life in the economy, more pain for unemployed – but some good news for homeowners
The economy is expected to show some growth in the next few years – a marked change from this year.
GDP will grow at 2.9% in the next year and 3% in the year to June 2027, followed by 2.9% growth in the year to June 2028.
On a per-person basis, the economy will not rebound to its 2022-23 peak until about 2028.
There is further bad news for people looking for a job, with Treasury revising upwards its unemployment rate forecast.
In December, it had expected an unemployment rate of 4.8% in the coming year. That figure is now 5%. Unemployment is also expected to be higher in 2027 at 4.8%, up from Treasury’s December forecast of 4.5%.
Wage growth has been revised downward to 2.6% in the coming year from 2.9%, and 2.7% the year after, down from 2.9%.
House prices are expected to recover strongly, however, with growth of 6.7% in the year to June 2027, a big increase from Treasury’s December forecast of 5.8%. The forecast rate of growth remains high in 2028 at 6.2% and 2029 and 5.3% – those figures are up from December forecasts of 5.1% and 4.3%.
Health: A new hospital for Nelson, longer prescriptions
The Government has begun funding a redevelopment of Nelson Hospital, although it will not reveal the total available funding, citing commercial sensitivity.
An emergency department expansion is set to be ready by early 2026. The new hospital, which will include a 128-bed inpatient building (an increase of 41 beds on current capacity), is expected by 2029.
Overall, $1b will be invested in hospitals, including Nelson and a refurbished emergency department in Wellington.
The Government has also said it will allow 12-month prescriptions for medicines, a saving for people who have long-term medicine needs, such as inhalers for asthmatics or insulin for diabetics.
Act leader and Associate Health Minister David Seymour said that from next year, prescribers will be able to issue prescriptions for up to 12 months, “if it is clinically appropriate and safe to do so”.
“The change could save up to $105 a year in GP fees for patients who need to renew their prescriptions four times annually,” Seymour said.
Big learning support investment
The Government surprised with a large increase in learning support, part of its social investment approach.
The Government has found $266m over four years for extending the Early Intervention Service (EIS) from early childhood education to Year 1 of primary school, creating 560 new jobs (measured by fulltime-equivalent staff or FTEs).
The service intervenes with children who need extra help early in their education journeys.
There is $122m over four years for the increased demand for resources for students with high and complex needs, $192m to ensure all Year 1-8 schools and kura have funding for a learning support co-ordinator, and $43m for speech language therapists.
Radio New Zealand (RNZ), which avoided last year’s funding cuts, will be subject to a 7% baseline funding cut in this Budget, equivalent to $18m over four years.
Some of that funding will be reprioritised to a $6.4m increase in funding over four years to council, community and court reporting through the Local Democracy and Open Justice initiatives.
Radio New Zealand chief executive Paul Thompson. Photo / Mark Mitchell
Arts and Culture Minister Paul Goldsmith said he expected 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”.
Increase to subsidy for private schools
The National-Act coalition agreement included a commitment to lift the Government’s subsidy for private schools.
The subsidy, which began in 2010, reflects the fact children in the private school system do not benefit from most education spending, despite the likelihood their parents pay tax.
The Budget will raise this subsidy by $15.7m over four years, lifting annual funding for the scheme to $46.2m.
Seymour said “inflation and costs for schools have increased and independent school enrolments have grown. This means schools receive funding that is worth significantly less than they need”.
Seymour said that in 2010 when the funding line began, there were about 27,600 students enrolled in private schools. The figure was 33,000 in 2024.
Aged care changes to get people out of hospital
The Government will put $24m over four years into aged care.
The funding is designed to discharge people from hospital and into an appropriate aged-care facility.
Seniors Minister Casey Costello said the “timely care transfer initiative” was developed in 2023 but had time-limited funding that ends in June.
“The investment means that current delays in discharging older people from hospital will be reduced and hospital beds will be freed up for those requiring treatment,” Costello said.
NZ First’s Shane Jones has secured a contingency fund of $200m over four years for the Government to invest in new gas fields.
The investment will come on top of the Government’s decision to repeal the offshore oil and gas ban.
Despite the repeal, there has been a lack of interest in investing in new offshore oil and gas development, partly because over the last few years, there has been a lack of new gas discoveries, and partly because of “sovereign risk” reasons – the name given to the fear that a future government would ban exploration again.
Jones said the investment from the Crown would mitigate against this by giving it a stake in any new oil and gas finds.
Jones said that although the way the investments would be structured was still being worked through, there was a “willingness, subject to Cabinet consideration, for the Crown to take a commercial stake of up to 10-15% in new gas field developments”.
“Talk is cheap but having skin in the game as a cornerstone investor in production demonstrates our own commitment to meeting 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,” he said.
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.
