Budget 2025: Growth promised, but will it come?

Friday, 23 May 2025

The headline promise for the Coalition Government’s “Growth Budget” is a $6.6 billion tax break for businesses that BNZ’s head of research says will produce “marginal” economic growth.

Nonetheless, Prime Minister Christopher Luxon and Finance Minister Nicola Willis insist the 2025 Budget, published on Thursday afternoon, sets up the country for an export-led economic recovery that has begun - despite Treasury downgrading its growth forecasts.

Luxon said he disagreed “completely” with any assertion the Government’s “Investment Boost” package - which will allow for businesses to immediately deduct 20% of the value of new assets off their tax bill - was lacklustre.

“That's going to be a huge boost to economic growth and actually more important, economic productivity,” Luxon said.

“That's a pretty cool deal, that from today, a tradie can go out and actually spend money on a ute, or farmer on a tractor, or plant and capital in a manufacturing organisation, that's actually going to improve the quality and the profitability of that business tremendously.”

But BNZ head of research Stephen Toplis said Treasury itself deemed the tax break as having a marginal effect on economic growth.

The projection contained within the Budget was an increase of GDP by 1% and a lift of wages by 1.5% over 20 years; Willis said at least half of that gain would come within five years.

“You don't get much more marginal than that, but, at the margin, it may encourage businesses to invest who wouldn't otherwise have done so,” Toplis said.

“The problem that they face, of course, is the same problem that the central bank faces when they cut interest rates to encourage investment …the business world at the moment is so damned uncertain about where things are going that it's reluctant to invest full stop.”

Amid this uncertainty, the Treasury in the Budget revised down its expectations for economic growth in the year to June, to 0.6% GDP growth from 1.6% growth previously expected.

It also marginally reduced the expectation for 2026 to 3.2%, and has assumed growth of 2.9% in 2027 and 2.8% in 2028.

Given the circumstances, Toplis said the Government would struggle to generate economic growth because it doesn’t have the “wherewithal” to run substantial surpluses.

“It just doesn't have the cash to do it right? I think they’re right in terms of the fact they need to keep the debt under control,” he said.

The Budget probably helped “set the framework to assisting growth over time”, he said.

Infometrics chief executive Brad Olsen said a 1% lift in GDP did not sound like much, but “it is important and it will start to lift growth”.

“Moving the dial too much on GDP growth, like fundamentally, either requires something really hardcore or something a lot larger in spend.

“The Government has had to balance out spending a lot more with getting some further growth. At the moment they’re trying to spend a bit - and, in fact, not taking in quite as much tax - but also getting a bit of economic growth.

“I feel like, on balance, it's not a bad place.”

Labour Party finance spokesperson Barbara Edmonds said she saw growth in the Budget: “growth in homelessness, growth in the pay gap between men and women, growth in unemployment”.

But she did not strictly oppose the accelerated depreciation scheme.

“Ultimately, it's always good to help businesses reinvest into capital items for their business.

“So that is a good measure, when you look at it, but within the wider context of the Budget, who's paying for this?”

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.

It was revealed in the Budget the Government was forecast to save about $12.8b from changes to the pay equity scheme, which sparked protests outside Parliament as the Government published its Budget yesterday.