Setting the scene for Budget 2025

Tomorrow the coalition Government of National, ACT & New Zealand First will announce Budget 2025.

The task for the Government is to walk a line that ensures fiscal responsibility, while still investing in measures that will help New Zealanders get ahead.

Many of the measures in this year’s Budget have been announced in advance, though there are always surprises to be revealed on Budget Day. Read on to discover what it means for business and what to expect on Budget Day.

Budget Backdrop

This year’s Budget takes place against the backdrop of rising global uncertainty. Be it trade wars, ever-changing tariffs or rising geopolitical tensions, the global economy has seen increased volatility on a level that has concerned businesses and analysts across the board.

This market tension is coupled with a challenging fiscal situation here at home. The Government is attempting to grow the economy without major fiscal stimulus, in order to control inflation and return to surplus in the coming years. Debt is at 43% of GDP, with net core Crown debt having risen by around $120 Billion since 2019. The cost of servicing this debt comes is nearly $9 billion a year today. Superannuation is another concern, with overall costs forecast to rise to $71.7 billion in 2050.

While there have been some positive signs – such as lower interest rates, sustainable inflation and boosts to our exports and tourism numbers – this year’s Budget arrives in a subdued economic environment. Fiscal challenges and a difficult global outlook are all reasons for a responsible Budget that charts a path back to surplus – which is why new spending will be tightly controlled.

What’s Been Signaled

The Government has consistently signaled a constrained and ‘fiscally responsible’ Budget. There is only a small amount of money which can be allocated for new operating expenditure, and as such, any further expenditure will largely need to be funded from savings and reappropriations.

It seems unlikely that the Government will borrow more given a consistent signaling of concern around net debt levels, so it should be expected that new initiatives are to be largely funded from savings from other areas, similar to the savings drive that occurred last year.

The Government has signaled a mix of fiscal constraint, prioritising core areas and incentivising growth areas – whether this can all be achieved on a constrained budget without compromising the overall fiscal position is yet to be seen.

The Government has signaled several focus areas in its pre-Budget speakers:

The Prime Minister’s ‘5 Pillars’ of growth: Talent; Science, Innovation & Technology; Business Settings; Global Trade & Investment; and Infrastructure.
Areas identified for new investment include: Health, Education, Defence & Transport.

What’s Been Announced So Far

As with other Budgets of recent years, there has been a slew of pre-budget announcements to frame the narrative of this year’s Budget. Some of the key announcements for business are listed below:

Some announcements, such as the continuation of the R&D Tax Incentive or funding for the Elevate Fund can be found in the pre-budget speeches from the Prime Minister and Minister of Finance, which can be read here:

What to look out for

Beyond the clear priorities for the Government, there have been several hints dropped about additional measures which could be seen in the Budget this Thursday.

Most of the measures hinted at are intended to boost economic growth. Issues like low capital intensity, productivity and business performance have been singled out along with hints around competitive business settings – that might include changes to foreign investment or capital depreciation. The Finance Minister has also signaled measures intended to boost KiwiSaver balances. These are meaty issues, which are colored by the ongoing question of where all the spending is going to be funded from.

Key items to watch out for are:

Where will the money come from? This budget contains the lowest operating allowance in a decade, so a key question will be where additional spending is funded from. Is the Government borrowing, reprioritising, or introducing additional revenue measures? The approach to this will have significant impacts on the wider economy.
Business Settings: The Government has made consistent promises about ‘business settings’ but what these new business settings are is still unknown. Options like an update on the Overseas Investment Office overhaul would be welcome, but options like incentivisation for foreign investors (e.g. easier home ownership), or wider issues like talent access could also be areas for the Government to help businesses.
Foreign Direct Investment: The Minister of Finance signaled Foreign Direct Investment (FDI) and low capital intensity as two reasons why we lag behind the world. On Monday she announced changes to employee stock ownership plan (ESOP) taxations as well as $65m to increase the amount of debt foreign investors can use to finance projects. While these are welcome announcements, these alone will not solve these longstanding issues – will there be more in the Budget to come?
Export Intensity: The Minister of Finance committed to Budget measures that will address our export intensity and support the goal of doubling exports by 2030 – given the turbulent trade environment, it will be of interest to see exactly what these measures are.
KiwiSaver: In the leadup to the budget the Government has been consistent on its aim to see New Zealanders’ KiwiSaver balances grow. Will we see an increase in mandatory company contributions? Employee contributions? A change is being heavily hinted at, but what that change is could have serious financial implications for companies, people, the Government – or all three.
Tax support for firms with high capital expenditure: The PM has consistently described this as ‘interesting’, but what shape this would take and what the levels would be are all up for discussion, and may not feature in the Budget at all.

Budgets are pivotal to the success of economies, and this Budget takes place in a time of uncertainty that only increases its importance.

The Wellington Chamber has a consistent focus on supporting the business community, which is the engine of our economy. We hope to see a Budget that focuses on business growth, while showing the fiscal restraint required to position us well for the years to come.