Tax and economy

Budget 2025

Budget 2025 – Going for growth

Budget 2025 confirms the Government’s strategy of going for economic growth to help New Zealand come out of its fiscally challenged balance sheet.  

Growth agenda

The Government’s focus in Budget 2025 is in the following areas:

  • Lifting economic growth through measures to address New Zealand’s long-term productivity challenges.
  • Implementing a social investment approach to drive better results from the Government’s investment in social services and thereby improve life outcomes for people with high needs.
  • Keeping tight control of government spending while funding a limited number of high priority Government policy commitments and cost pressures that cannot be met from reprioriti

Budget commentary sections:

So what is the business impact of Budget 2025? 

From a tax and business perspective, there are some targeted measures which will encourage investment in productive assets and attract foreign direct investment, businesses and talent including:  

  • A new tax incentive called Investment Boost which will give businesses an immediate 20% deduction for the cost of purchasing new productive assets such as plant & machinery, tools and equipment on top of normal depreciation. Find out more about the Investment Boost here.
  • The establishment of a new dedicated agency Invest New Zealand which will partner with multinational corporations and foreign investors to promote investment in sectors with strong growth potential, innovation, research and high-value jobs.   
  • The establishment of three new public research organisations focused on bio-economy, earth sciences and health and forensic sciences.  
  • Funding for a new gene technology regulator to support safe and effective use of gene technology.
  • $75 million over the next four years to encourage foreign investment in New Zealand infrastructure ($65 million) and make it easier for startups to attract and retain high quality staff ($10 million to defer the tax liability of some employee share schemes).
  • $577 million increase in support of film and TV production across this year and the next four takes total funding for the rebate scheme to $1.09 billion over the forecast period.
  • $100 million extra funding for the Elevate venture capital fund to help grow New Zealand’s early-stage tech companies.

How does the Budget support business growth?

For the first time since our BDO Business Wellbeing Index survey began, the May 2025 Index shows that business growth is now a leading (top five) issue for business leaders, who must now consider how they can achieve sustainable growth – and which opportunities they might capitalise on.

The Investment Boost which applies to all new assets purchased from 22 May 2025 is an example of a specific targeted policy which is aiming at boosting investment, productivity and growth and is likely to be well received by businesses.

Investment Boost

An upfront 20% deduction of the cost of new productive assets that are depreciable for tax purposes is a new tax incentive which will be welcomed by businesses with growth ambitions.  

It applies to new assets acquired from 22 May 2025 so there is no excuse for waiting.  Common examples of depreciable property include plant & machinery, equipment and work vehicles.  

Surprisingly it also applies to new commercial buildings acquired after 22 May 2025.  Commercial buildings have a zero percent depreciation rate but if a business acquires a new commercial building, the business will get a 20% upfront deduction for the outer shell and the building fit out which will continue to be depreciable.

The Investment Boost will give the taxpayer a 20% deduction of the cost incurred in acquiring the new eligible asset.  The taxpayer will then be able to claim normal depreciation from the remaining 80% of the cost.

Note it does not apply to the purchase of second-hand assets which have previously been used in New Zealand, but a secondhand asset acquired from overseas should be eligible.  

It also does not apply to residential buildings, land, fixed-life intangible property, assets which are held as trading stock or assets which are fully written off as a low value asset (below $1000).

“The application of the Investment Boost to new commercial buildings should provide a useful boost to the construction sector as well as encouraging increased investment in productive assets which should help businesses grow their profitability. The potential application to capital improvements on existing commercial buildings should help address an area of blackhole expenditure where the improvement - such as strengthening an industrial building - was not deductible as a repair and was depreciable at zero percent.”
Iain CraigBDO Tax Partner

Attracting foreign direct investment

Sending a firm message that New Zealand is open for business, Budget 2025 includes the formation of Invest New Zealand, an autonomous Crown entity dedicated to attracting new international investment, businesses and talent to New Zealand. $85 million has been allocated over four years. Invest New Zealand are to partner with multinational corporations and foreign investors to:

  • Promote investment in advanced sectors with strong growth potential.
  • Attract new capital to innovative New Zealand businesses and research institutions.
  • Encourage global companies to expand their R&D footprint in New Zealand.
  • Help attract skilled workforce needed to support an innovation-led economy.

KiwiSaver changes

There are a number of changes proposed to KiwiSaver which are to be phased in over three years.   The changes include:

  • Increase the default employer and employee KiwiSaver contribution rates from 3% to 3.5% from 1 April 2026 and then to 4% from 1 April 2028.
  • However, members can apply to IRD for a temporary savings reduction to remain at 3% for a 12-month period.  Employers would match the contribution at 3%.  At the end of the 12-month period members can apply for another temporary savings reduction.
  • Reduce the government contribution by 50% from $521.43 to $260.72 per year.
  • Members with employment income over $180,000 will not be eligible for government contributions.
  • Extend the eligibility to 16-17 year olds provided they contribute sufficient funds to their KiwiSaver account.  They will be eligible for a government contribution from 1 July 2025, and from 1 April 2026 eligible for mandatory employer contributions.  Auto enrolment will remain at 18.

Tax – getting it right 

Budget 2025 provides new funding of $35 million a year for Inland Revenue to carry out tax compliance and collection activities.  This is on top of the $27 million a year allocated previously which was due to cease in June 2025 but has now been extended.

Interestingly the Budget’s expected return from this funding is set at $4 per $1 spent in 2025/26 rising to $8 per $1 spent in 2026/27 and beyond.

From July to December 2024, Inland Revenue conducted 3,600 audits (up 50% from the prior year), and found $600 million of additional tax that should have been declared.  

There is increased focus on the property sector/transactions, with an increased $153.5 million of discrepancies being found in the first nine months to June 2025.    This is mostly relating to developers and GST but there have also been issues with non-compliance of the bright line rule.

There is also a focus on crypto transactions, child support, student loans and the hidden economy.  

Iain Craig, BDO Tax Partner says “Businesses can expect increased audit compliance activity from Inland Revenue and should be prepared for this, especially as its systems have become more sophisticated providing it with increased ability to detect unintentional errors or deliberate acts to avoid paying tax.   

Larger businesses should ensure they have sound governance and tax risk management policies clearly documented and internally monitored to reduce the time and cost of Inland Revenue audit activity.  

Businesses should also expect Inland Revenue to be much tougher on tax arrears than they have in the last several years. The message is if a business has cashflow issues they should talk to Inland Revenue as soon as possible to arrange a payment plan. That’s the best way to minimise interest and penalty costs.”

Investing in New Zealand

In pre-Budget announcements the Government confirmed its intention to make changes to tax rules to make it easier for non-residents to invest in New Zealand infrastructure projects.   

This includes:

  • $75 million over the next four years to encourage foreign investment in New Zealand infrastructure ($65 million) with feedback being sought on proposed changes to New Zealand’s thin capitalisation regime
  • Proposals to make it easier for startups to attract and retain high quality staff ($10 million) by deferring the tax liability of some employee share schemes until there is a liquidity event.    
  • Proposed changes to the foreign investment fund (FIF) rules to reduce the economic double tax effect of New Zealand’s FIF regime on some new migrants by introducing a new optional revenue account FIF method. While the detail is still to be worked through, the new method will enable new migrants who become fully tax resident on or after 1 April 2024 to be taxed on a realisation basis for their FIF investments acquired before they moved to New Zealand. The new method may also apply to returning New Zealanders who have not been tax resident for a minimum (to be determined) number of years.  
“While more work needs to be done in this space, these initial proposed changes to remove some of the tax barriers for foreign investment in infrastructure projects in New Zealand are a good start.”
Alan ScottBDO Tax Partner


Fringe benefit tax

Inland Revenue (“IR”) recently issued Fringe benefit tax – options for change (an officials’ issue paper) for public consultation.  Fringe benefit tax (FBT) was introduced in 1985 to buttress the pay-as-you earn (PAYE) system – prior to then it was possible to substitute taxable wages with non-taxable benefits such as the ‘company car’.

The issues paper notes that the regime has become increasingly complex and less appropriate in some ways over time and that it can impose a significant administrative and compliance burden on employers.  The issues paper explores ways to address the compliance and fairness concerns particularly with regard to the most common forms of fringe benefits such as motor vehicles, unclassified benefits and entertainment.

The changes are intended to improve the logic and fairness of the rules.   They are not intended to reduce the FBT take and so there will be some winners and some losers.  But it is hoped/expected that there will be an overall benefit for most, if not all, employers in the form of lower administration and compliance costs.

Digital Services Tax dumped

In a pre-Budget announcement, the Government discharged the Digital Services Tax Bill from the legislative programme. The Bill was looking to apply a 3% tax on digital services revenue earned from New Zealand customers by large digital services companies. The Government will instead focus on a global solution to address the taxation challenges posed by digitalisation. By discharging the Bill, any forecasted revenues from the Digital Services Tax are not included in the Crown accounts published in Budget 2025.

More information and help available

You can read more details on Budget 2025 at the Government Budget website here.

To talk about how any of today’s Budget announcements will affect your business and for help, or to talk about your business, reach out to your local BDO office today.  

Key contacts

Mark Lodder

Mark Lodder

National Tax Leader, Tax Partner
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