Budget 2025: Government Kiwisaver subsidies slashed, $6.6b boost for business tax breaks

Thursday, 22 May 2025

The Government has delivered a Budget that mandates higher KiwiSaver contributions while cutting government contributions, invests in core public services at the expense of potential pay rises for low-paid women and unemployment benefits for teens, and offers $6.6 billion in tax incentives for businesses.

The KiwiSaver minimum contribution rate will increase from 3% to 3.5% and then 4%. You can find more about it here.

Finance Minister Nicola Willis handed down the Coalition Government’s second Budget on Thursday afternoon. Branded “the Growth Budget”, it confirmed that $12.7b in savings attained by slashing potential pay equity claims for women workers had stopped a fiscally-tight Budget from blowing out.

The documents outline a Budget that expects the Crown to spend $186b in 2025, balanced against revenue of $169b - an increase on 2024.

Overall the Budget offered $6.6b annually in new spending across businesses, health, education, and police, but paid for through $5.3b in cuts to existing spending programmes and forecasts.

The much-promised surplus in 2029 remained, but it has shrunk as slowing global economic growth is expected to reduce the Government’s tax revenue in years to come.

At the same time, Treasury confirmed an export-led turn-around in the economy was under way.

“Budget 2025 is about growing the economy to help Kiwis get ahead. It is a responsible Budget which supports the economic recovery, and addresses longer term challenges,” Willis told reporters, at the Budget lock-up.

KIWISAVER EXPANDED AND CUT

Core to the Budget was a change to KiwiSaver, mandating that default contributions for both employees and employers would rise from 3% to 3.5% in April 2026, then to 4% from April 2028. People will be able to apply to temporarily remain at 3%, which would be matched by the employer.

Willis said this change would be phased in to help workers and employers plan ahead.

KiwiSaver would also be extended to 16- and 17-years-olds, giving them access to both the Government and employer contributions, at a cost of $29m over four years.

“This will encourage young people to adopt a saving habit and help them build a deposit for their first home.”

To make the scheme “sustainable”, the Budget also promises to slash the state’s annual contribution to KiwiSaver, halving it to 25c of each dollar contributed, and dropping the maximum state contribution from $521 to $260.

Cost savings for the Government due to the KiwiSaver changes amount to $3b in savings.

KiwiSaver balances of workers would grow faster as a result of the changes, Willis said.

Another major promise of the Budget was an offer of $6.6b over four years in tax breaks for businesses that invest in new capital and equipment.

The accelerated depreciation expensing scheme, called “Investment Boost” by the Government, will allow for business to immediately deduct 20% of the value of new assets off their tax bill – an opportunity the Government hopes will stimulate economic growth.

The Government expects this will increase GDP by 1% and lift wages by 1.5% over the coming 20 years, with at least half of that gain coming within five years.

Willis said Treasury advised her the benefits of this scheme would flow directly to workers, through higher wages and higher employment.

PAY EQUITY CUT WORTH $12.8B

The Budget revealed a key figure the Government has for weeks avoiding sharing: how much it expected to save by overhauling the pay equity regime in an unexpected bout of urgent lawmaking two weeks ago.

By scrapping 33 pay equity claims and tightening claims system, the Government expects to save $12.8b against previously forecast equity payouts, over the coming four years.

Willis disputed suggestion this money was being cut from women’s future pay, and the regime was “unworkable, unaffordable” and Labour had hidden cost blow-outs within unspecified contingencies in prior Budgets.

HEALTH, EDUCATION FUNDED

Health, education, police, and defence were major areas of investment, alongside smaller-scale cost of living spending, also paid for by slashing various spending intitatives and projections.

Willis called this the “biggest part of the Budget, by far”.

Senstitive to claims it was underfunding the health sector, the Government will increase baseline health spending by $1.37b a year, or $5.4b in the coming four years, to meet the demands of population growth and inflation.

This increase, which brings the total health spending for 2025 to $32.7b, compares to what Labour has said was needed to keep up with demands.

Within $799m in capital investment in healthcare in the coming four years were promised redevelopments of Nelson Hospital and works on Palmerston North Hospital and Wellington’s emergency department. But the specific figures for these investments were not disclosed due to commercial sensitivity.

Learning support in schools will also get a sizeable funing lift within a $2.5b increase in the coming four years.

Students with communication, learning, and physical needs have been failed for too long, Willis said.

More than 560 early intervention teachers and specialists will be hired with a $266m boost to the early intervention service that already has 7100 children on its books. The service will be extended to the end of year 1, with the expectation that 4000 more children receive this support, and 3000 children the need support will receive it sooner.

A further $122m over four years will go to the Ongoing Resourcing Scheme (ORS) for high-needs children, so 1700 more students can have specialist and teacher aide time. Another $192m will be spent so that all primary and intermediate schools have a learning support co-ordinator.

Frontline policing will also receive $480m in the coming four years, part of a wider $1.1b law and order package. As already forecast, defence receives a $1.49b operating and $2.6b capital spending uplift in the coming four years.

Smaller spends the Government hopes are meaningful to families include a change to medicine prescriptions, making prescriptions valid for up to 12 months instead of three, reducing the need for GP visits. This will cost $91m over four years, as more medicines are expected to be provided.

Many families receiving the Working for Families tax credit scheme will receive an increase of $14 a fortnight on average for 142,000 families, as the abatement threshold is lifted from $42,700 to $44,900, and the abatement rate from 27% to 27.5%.

The cost of this, $205m over four years, will be paid for by income-testing the first year of the Best State tax credit package, as it is in years two and three, which saves $211m.

“We want to target support to New Zealanders who need it most,” Willis said.

As many as 66,000 more households of retirees will be elegible for a rates rebate scheme, as the Government spends $120m in the coming four years to lift the income threshold to $45,000 for entry into this scheme - part of National’s coalition agreement with NZ First.

TEEN BENEFITS AMONG CUTS

But, given the Government’s comparatively-small $1.3b operating allowance, or new spending it afford itself this year, the spending iniatives in the 2025 Budgets have been funded by a series of cuts and repriorisations beneath the billion-dollar pay equity figure.

In total, the Government has found $5.3b in saving each year.

Benefits for single 18- and 19-years will be entirely cut from July 2027, if the young person can reasonably be expected to receive parental support. This will save $163m in the coming four years, however Cabinet was yet to decide on the fine print of this change.

Willis said parents would welcome this policy, as some struggle to motivate their children while they received a welfare cheque.

“This will be a support to those parents who want to see their kids taking on an apprenticeship, taking on part-time work.”

Other larger savings the Government has banked include an expected $225m over the coming four-years through “automated decision-making” within how the Ministry of Social Development provides welfare support. Efforts to reform emergency housing will save the Government $1b in the coming four years.

International Development Co-operation spending, which funds development projects as part of New Zealand’s Paris Agreement commitments, was previously at $200m a year but was not funded by the prior Government beyond January 2026.

The Government has now decided to continue the funding, but has halved the total to $100m a year.

THINNER SURPLUS EXPECTED BY 2029

The Government’s fiscal track has remained broadly in line with Treasury’s forecasts of six months ago, with a sought-after, but wafer thin, surplus still expected to be achieved by 2029, when measured by the Government’s new measurement which excludes ACC costs.

The surplus is now expected to be $214m in 2029, as opposed to $1.8b in the projection six months ago.

Net core Crown debt is expected to peak slightly lower but a year later, at 46% of GDP in 2028, instead of 46.5% in 2027. The interest bill on this debt would reach $9.5b per annum this year.

“I’m proud that we remain on track to get the books back in balance, to get the debt curb bending down,” Willis said.

In its forecast contained in the Budget, the Treasury said a weaker global economic backdrop had lowered short-term expectations for GDP growth, part of why Crown tax revenue was now expected to be $13.3b lower in the coming four years.

Of this, $4.8b less tax was expected to accrue due to changes made by the 2025 Budget.