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On 22 May 2025 the Coalition Government released its second budget, dubbed the fiscally conservative “no BS budget”.  Below are the key takeaways:

Investment boost

• A new tax incentive which allows businesses acquiring productive assets to immediately deduct 20% of the cost of a depreciable asset in the year of acquisition, in addition to normal depreciation. This means businesses will face a lower tax bill in the year of purchase.
• The incentive applies to all new assets purchased in New Zealand, as well as new and used assets imported from overseas. It applies to new commercial buildings (even those not ordinarily depreciable) but does not apply to residential buildings.

KiwiSaver

• Government KiwiSaver contributions halved to 25 cents per dollar contributed, capped to a maximum of $260.72 p.a.
• Removing the Government contribution for members with taxable income over $180,000 p.a.
• Increase the default employee and employer contribution rate from 3% to 4% over a 3-year period:
• 5% from 1 April 2026
• 4% from 1 April 2028
• Members who are under financial stress can apply to Inland Revenue for a temporary reduction of their contribution rate to 3%
• Extending the eligibility to receive employer and Government contributions to 16- and 17-year-olds.

Thin capitalisation

• To encourage foreign investment into New Zealand, $65m has been set aside for changes to the thin capitalisation rules, pending the outcome of consultation on the details.

Employee share schemes

• Allow employees to defer the tax liability that arises on income from certain employee share schemes, e.g. start-up companies, to be deferred until a liquidity event occurs, such as the sale of the shares.

Increased funding for audits and tax collection

• Increased funding of $35m has been allocated to Inland Revenue for compliance and tax collection. This is expected to have a return of 4:1 in 2025/26 and 8:1 in 2026/27 and beyond, being a mix of increased tax revenue and decreased debt impairment.

Pay equity overhauled, increased spending in health, education, law & order, and defence

• Government spending slashed by an average of $5.3bn p.a. for the next four years.
• Half of the savings result from the overhaul of the pay equity thresholds.
• New spending of $6.7bn a year – mostly through increased budgets for health, education, law and order, and defence.

Other changes

• The Government will proceed with FBT reform proposals to modernise the rules and reduce compliance costs.
• Best start child payments to be fully means tested
• Welfare for 18–19-year-olds now subject to a “parental assistance test” to prove their parents cannot support them
• Student loan repayment thresholds frozen.

If you would like to discuss how the Budget may impact you, please contact us via email or phone.