In delivering Budget 2025 the Government has been true to its promise that there would not be a lolly scramble in these fiscally constrained times. Rainbows and unicorns (to coin a phrase used by the Minister of Finance) were hard to detect.

There is a strong element of robbing Peter to pay Paul with $5.3 billion per annum of savings, reprioritisations and revenue raising (combined with the $1.33 billion additional operational allowance) being used to fund new spending of $6.7 billion. A significant portion of the savings ($2.7 billion per year on average) comes from changes to the pay equity regime made under urgency the week before the Budget.

The Budget includes a series of targeted initiatives to support businesses including via some key changes to tax settings. These include an upfront 20% deduction for most assets (dubbed ‘Investment Boost’) and limited relaxation of the thin capitalisation and foreign investment fund rules. Investment Boost is a significant investment by Government in the productive sector - estimated to reduce Government revenue by $1.7 billion per year.

Given the fiscal constraints, the options for supporting business and Kiwis generally were always going to be limited. An upside of fiscal constraint is being able to deliver a Budget that is less likely to be inflationary.

The biggest winners in the business sector are the businesses that will be eligible for the upfront 20% deduction on assets, the film and television industry, and foreign investors moving to New Zealand. These investments by Government alongside incremental long-term investments in improving education and health outcomes are consistent with this Government’s focus on growing the economy.

It is good to see new cost of living support targeted at low to middle income households. The measures announced include the raising of Working for Families thresholds and abatement rates, income testing Best Start tax credits, and making more SuperGold cardholders eligible for a rates rebate. The measures are fiscally neutral so there will be winners and losers. Families on higher incomes will receive less support and families on lower incomes will receive more support.

There is also an uplift in funding for Disability support services including a $60 million per annum boost for residential care.

Former Prime Minister Sir Bill English should be pleased to see $275 million allocated to social investment initiatives. As the Minster of Finance said in her Budget speech “social investment is about the government investing earlier, guided by data and evidence and with more transparent measurement of the impact that interventions are having in people’s lives.” Taking an evidence- based approach to Government spending should be the benchmark.

KiwiSaver

There is a suite of changes to KiwiSaver. The biggest change is increasing the default employer and employee contribution rates from 3% to 3.5 % from 1 April 2026 and then to 4% from 1 April 2028.

In principle we support an increase in the default contribution rate as Kiwis need to save more.

Increasing the employer contribution to 4% over 3 years imposes an additional cost on some but not all employers. Some employers take a total remuneration approach which effectively means the employee is funding the employer contribution. Employers will be relieved that the increase in their contribution obligations is phased in over three years but some will be frustrated that the changes mean the costs of KiwiSaver are being moved in part from the Government to employers.

It is a sad reality that Kiwis who most need to save can least afford to do so particularly in the current economic climate where the cost of living is a challenge for many. We are therefore pleased to see that KiwiSavers will be able to opt down to the current contribution rate of 3% for 12 months (from 1 February 2026) and then reapply to opt down in later years. This concession should mean fewer KiwiSavers than otherwise could have been the case will need to suspend their savings (take a contributions holiday) in constrained times. However, the opt down option is likely to exacerbate the existing retirement savings gap between men and women.

KiwiSaver is a good example of funding new investments by changing the current rules - reprioritisation. Halving the Government’s maximum annual contribution to $260.72 (25 cents for each dollar a member contributes up to $1,042) and) removing the annual Government contribution of up to $521 for KiwiSavers whose income exceeds $180,000 from 1 July 2025 frees up funding to extend eligibility for the Government contribution to 16- and 17-year-olds from 1 July 2025.

The KiwiSaver reforms are likely to make a difference to our collective retirement savings but we are still a very long way from replicating the Australian savings culture and levels.

Health

Budget 2025 delivers additional capital investment of over $1 billion in the health sector including hospital upgrades in Nelson, Palmerston North, Wellington (the ED) and Auckland. Opex for health is increased by $5.5 billion (a 7% increase) and Pharmac receives additional funding including for additional cancer treatments. Four hundred and forty seven million dollars are allocated to urgent and after- hours services.

These numbers seem large but will they be enough to improve across the board health outcomes as the population ages? We would have liked to see more innovative measures introduced to boost GP numbers given the huge pressure the primary health sector is under with an ageing population of GPs.

Other expenditure areas

For details on the increased opex spent this year on Education ($381 million), Defence and Foreign Affairs ($477 million), Law and Order ($263 million), and Transport ($64 million) and increased capex on education ($734 million), Defence ($1 billion this year and $1.6 billion next year) please see our infographic and Treasury’s Budget 2025 web pages.

Picking winners

The film and television industry has been given a $577 million boost over the Budget period of four years, on top of the existing $450 million international screen production rebate. This sizeable contribution suggests the Government is comfortable with the return on its investment in the sector. There is no obvious reason to doubt that the Government is backing the right horse here but it will be good to see a robust review of the quality of the spend in due course.

There was little obvious additional funding for the regions or the primary sector, although Investment Boost (the upfront additional depreciation deduction) will benefit businesses across the whole country.

The Minister of Finance was asked about reduced investment in initiatives for Māori. She responded by referencing across the board investment initiatives that will benefit Māori. A similar response was made by the Minister of Housing and Infrastructure.

What else is missing?

Unsurprisingly the Budget does not include commentary on tariffs other than a comment from the Minister of Finance that New Zealand’s pace of recovery may be affected by the current global uncertainty.

Other than the KiwiSaver changes that will increase levels of retirement savings there are no changes to broader retirement settings (the age of entitlement and potential means testing for National Superannuation). This is not a surprise – successive governments have ruled out changes to retirement settings despite the burgeoning costs of National Superannuation as New Zealand’s population ages.

Final comment

A valid question to ask is whether a government with a very small operating allowance is spreading its expenditure too thinly. Should it be tightening its focus and spending more on fewer initiatives?   Which approach is better for growth? These are tough questions but it comes down to the quality of the spending in each case. Will each investment result in meaningful and measurable outcomes? Regular reporting and robust post implementation reviews of all areas of Government spending must be part of the plan. Time will tell whether the right trade-offs have been made.