Budget 2025

22 May 2025

The Minister of Finance, the Hon Nicola Willis, delivered Budget 2025 on Thursday, 22 May 2025, and there was good news for businesses wanting to invest in their capital equipment!!

The Minister announced that Budget 2025 secures New Zealand’s economic and fiscal recovery and advances reforms to make New Zealanders better off in future. Budget 2025 delivers:

• a new tax incentive — Investment Boost — to encourage business investment that lifts wages and grows the economy

• additional investment in health, education, law and order, and other frontline public services

• KiwiSaver changes to support Kiwis to save more for their first home and retirement, and to make the scheme more fiscally sustainable

• funding to boost Defence Force capability and respond to a more challenging global environment

• new infrastructure, including a $1 billion investment in hospitals and a more than $700 million investment in schools, and

• targeted cost-of-living support for low- to middle-income families and other groups.

  
  

The taxation measures in the Budget are as follows:

• introduction of Investment Boost

• changes to Working for Families, and

• changes to KiwiSaver.

  
  

Investment Boost - Tax Incentive

Investment Boost is a new tax incentive for New Zealand businesses to invest in productive assets like machinery, tools and equipment. Investment Boost also applies to the purchase of new commercial buildings, which do not allow depreciation deductions. Second-hand assets are generally not eligible for Investment Boost, but those that are sourced from overseas may be able to claim the deduction. Businesses can deduct 20% of the new asset’s value from that year’s taxable income, on top of normal depreciation. The deduction applies to new assets purchased from 22 May 2025.

Investment Boost does not cover:

• assets that have previously been used in New Zealand

• land (although land improvements, such as fencing, may be eligible)

• assets that will be held as trading stock

• residential buildings (dwellings)

• fixed-life intangible assets (such as patents)

• assets that are fully expensed under other rules (eg assets valued below $1,000).

• second-hand assets are generally not eligible for Investment Boost, but those that are sourced from overseas may be able to claim the deduction

• Information is limited currently to this fact sheet.

Environment Test Chamber Cost	200,000
Investment Boost	20%
Investment Boost Deduction	40,000
Capitalised Cost	160,000
Depreciation Rate	11%
Depreciation Year 1	16,800
Deductions in Tax Return Year 1
Depreciation	16,800
Investment Boost Deduction	40,000
Total Deductions	56,800

Changes to Working for Families

The changes to Working Families include lifting the Working for Families abatement threshold from $42,700 to $44,900 and raising the abatement rate from 27% to 27.5%. Families with income close to the new threshold will get greater additional payments — up to $23 a fortnight.

The cost of the extra support will be met by income testing the first year of the Best Start tax credit in the same way the second and third years are, with payments starting to diminish above a family income of $79,000 and cutting off entirely when a family earns just over $97,000 a year. Families of children born before 1 April 2026 will not have their Best Start payments income tested and will continue to receive the maximum amount until their child turns one. The changes will take effect from 1 April 2026, following legislation to be introduced on 22 May 2025.

Changes to KiwiSaver

Budget 2025 makes changes to KiwiSaver that will:

• increase the default employer and employee KiwiSaver contributions rates from 3% to 3.5% from 1 April 2026, and then to 4% from 1 April 2028

• allow members to choose to temporarily remain at the current 3% and still be matched at that rate by their employer

• extend KiwiSaver eligibility to 16- and 17-year-olds, allowing them to access both employer and government contributions

• reduce the government contribution rate from 50 cents for each dollar a member contributes to 25 cents from 1 July 2025. The maximum government contribution will reduce from $521.43 to $260.72 per year, and

• limit eligibility for the annual government contribution to those earning $180,000 or less.

  
  

Tackling New Zealand’s rising IR tax debt

Budget 2025 includes an allocation of $35 million a year for Inland Revenue to carry out tax compliance and collection activities, and a continuation of funding of $26.5 million a year provided in Budget 2022 that was due to cease in June 2025.

In addition to this, we note on the 7th April, IR publicly announced that their activity in the last six months of last year was up 50% from the same time for the year previous, after a funding increase which was also provided in the 2024 budget.

Consultation

Tax Policy, Inland Revenue, has announced that consultation has been launched on the following proposals:

• Empowering families: Increasing certainty and preventing debt in the Working for Families scheme.

• Thin capitalisation settings for infrastructure.

  
  

In addition, the Government has announced its intention to proceed with reform previously consulted on:

• Fringe benefit tax — options for change — proposals to modernise the rules and reduce compliancy costs.

• Employee share scheme timing issues — proposals to address a taxation timing issue for employee share schemes offered by start-up companies.

  
  

Source: CCH News, Budget 2025, Tax Policy Inland Revenue website, 22 May 2025, accessed 22 May 2025.