By EMA Head of Advocacy and Strategy Alan McDonald
The Investment Boost tax incentive and changes to KiwiSaver contributions are the main impacts for EMA Members from Thursday’s Budget announcement.
The EMA was invited into the Budget lock-up in Wellington to get an early look, and we feel that these changes provide good bones with a little bit of meat to encourage growth.
This comes against a background of the government having little money to spend on growth initiatives while being under pressure to improve investment and conditions in the health, education and welfare sectors.
Given that background, our view is that Budget 2025 gives enough to send businesses a signal to invest in growth.
Of course, there could be more, but the government has also consistently challenged the business sector to do more. Some of the changes in education and social investment is the government saying that it will help, however, the Investment Boost scheme announced today is the showcase initiative for business.
The EMA has long campaigned for changes to either the depreciation settings or tax settings to support new investment by businesses. So, the Investment Boost scheme is a positive step that provides a tax incentive boost for all businesses. It allows a business to immediately expense 20% of the cost of new machinery, tools, and equipment from today.
That includes new work vehicles and new commercial buildings, including those that don’t yet have a signed-off Code of Compliance.
After that tax deduction, the existing rules around ongoing depreciation still apply. The EMA’s preference was for accelerated depreciation regimes to replace the current complex system. Nevertheless, an immediate 20% tax deduction is also a very strong signal and incentive for businesses to invest.
It also applies to investment on any scale from a few thousand dollars to $100 million-plus, so all businesses benefit.
Estimates put the value at a 1% increase to GDP, 1.5% wage increase and 1.6% gain in New Zealand’s capital stock over 20 years.
The most significant gains will likely be in the first five years of the scheme (significant gains were made in Australia when it introduced incentives post-Covid), and the costs are expected to be about $1.7 billion per year, until the end of the 2029 forecast period.
But it’s the immediate application and the expected significant gains over five years that are the good news for businesses, as the government tries to stimulate growth.
Another significant change for our Members is the lift to KiwiSaver rates from 3% to 3.5% on 1 April 2026, and rising again to 4% in 2028. Those changes apply to both employer and employee contributions, although employees can opt out to continue paying just 3%. This looms as an annoying issue for payrolls. If employees take that option, the employer can also opt to match the lower rate.
Government will halve its contribution to $260.72, and extend that to 16- and 17-year-olds in the workplace, but cut the contribution entirely for those earning over $180,000, which is about 2% of the working population.
The government is planning changes to thin capitalisation rules to encourage investment in infrastructure by easing restrictions on debt funding, with $65 million allocated pending consultation.
It is also allocating $10 million to defer tax on employee share schemes until a liquidity event, aiming to support startups and unlisted companies.
Elsewhere in the Budget, there is $6.8 billion set aside for infrastructure spend, with about $4 billion of that in capital spend. Those investments are scattered around the country in schools, hospitals, prisons, rail and defence.
Many of those, such as the upgrades to Auckland hospitals and roads in Hawke’s Bay, will be welcome boosts in services and for the local businesses involved in the construction.
More importantly, in order to catch up in infrastructure, there are changes to legislation and access to funding.
The Resource Management Act rewrite, funded in the Budget, is just one of several key legislative workstreams that will affect faster funding, financing and delivery of infrastructure.
That includes the $85 million set aside for Invest New Zealand over the next four years to attract, encourage and facilitate overseas investment in New Zealand infrastructure. Under Trade and Investment Minister Todd McClay, the agency will formally be established from 1 July 2025.
The $200 million set aside for government to co-invest in new gas fields is a positive step, as the current gas shortage impacts on higher electricity prices for industry. However, attracting new entrants will remain difficult while the Opposition continues to threaten a wind-back on any legislation that eases the current ban on oil and gas exploration.
A $400 million investment in tertiary education is aimed at another restructure in the polytech sector and additional funding for the Youth Guarantee scheme. Both are important for providing much-needed technical skills to employers in the workplace, as well as further assisting young workers into the workplace for the first time.
Businesses that dabble in the black or grey economies have also been put on notice with a $35 million funding increase to Inland Revenue to chase tax evaders. Inland Revenue’s crackdown on unpaid taxes has already seen tax debt become the No. 1 reason for business liquidations.
Budget 2025 contains an operating budget of just $1.3 billion, the lowest in a decade, but includes $5 billion a year in new spending and $1.7 billion a year for the Investment Boost scheme.
It also contains savings of $5.3 billion a year, and Finance Minister Nicola Willis acknowledged a significant portion of that saving came from the changed Pay Equity provision. Those changes were made just two weeks ago and take the settings back to the 2017 settings, while putting 33 claims on hold until they are reassessed against the new criteria.
The Budget forecast also expects core Crown expenses to remain steady in the short term, before declining to 30.9% (as a percentage of GDP) by FY2028/29. Crown spending probably won’t decrease overall, however, a decrease as a percentage of the economy means growth elsewhere – the key focus of this Budget.
Given that GDP this year is at 0.8%, Treasury’s growth forecast of an increase in GDP by 2.9% in 2025/26, and a further increase to 3% in the following year, looks very optimistic – especially when we’re seeing such a sluggish recovery locally, despite strong export growth.
An ongoing uncertain international trade environment is also a risk. That risk for GDP is acknowledged by Treasury in its commentary.
Budget summary and key points
The EMA supports the growth focus, but investment incentives must be matched by regulatory certainty to unlock private sector confidence.
The Budget sets the right direction, but long-term growth depends on bold structural reform, especially in fiscal sustainability and regulatory stability.
Fiscal Direction & Risks
• The Budget takes a no-frills, reprioritised approach, with limited new spending targeted at productivity and growth.
• Surpluses remain years away, and prudent debt management is essential to avoid funding day-to-day costs with borrowing.
• Tough decisions on major spending items (eg, superannuation, student loans) are being deferred, creating long-term risks.
Business-Focused Policies
• The Investment Boost tax incentive allows businesses to immediately deduct 20% of new asset costs, providing a welcome stimulus for capital investment.
• Employee share scheme reforms will help startups by aligning tax timing with liquidity events.
• Changes to thin capitalisation rules are aimed at unlocking infrastructure investment.
KiwiSaver Adjustments
• Contribution rates will rise progressively for both employers and employees, but government support will reduce for high earners and in total value.
• There’s a pressing need for a comprehensive review of New Zealand’s savings framework, including the role of KiwiSaver and NZ Super.
Regulatory & Infrastructure Signals
• Introduction of the Regulatory Responsibility Bill is a long overdue, but important, step to improve policy certainty.
• Budget 2025 includes significant infrastructure investment in health, education, transport and defence.
• A Crown stake in new gas field developments is being explored to secure domestic energy supply and address sovereign risk.
