May 23, 2025
On May 22, 2025, Minister of Finance Nicola Willis unveiled New Zealand’s 2025 “Growth Budget”, delivering a mix of business-friendly incentives, fiscal restraint, and targeted investments to navigate a challenging economic landscape. For small and medium enterprises (SME), the Budget offers opportunities to boost productivity and manage costs, alongside broader economic measures that could impact your business. Here’s a breakdown of the key points you need to know, focusing on how they could affect your operations.
This mid-term budget balances cost savings against several incentives and costs to SME businesses.
Note that the 2025 and 2026 economy contraction/growth forecasts in the 2nd section below are for the whole economy.
There will be regional and industry differences. SMEs servicing infrastructure areas of the economy (directly or indirectly) will be better placed for growth than those dependent on consumer spending.
For more context, read my post on New Zealand’s infrastructure deficit, estimated at NZ$1 trillion (NZ$1,000 billion) over the next 30 years. Or put another way, a spend of NZ$30 billion per year for the next 30 years, within an economy that currently totals approximately NZ$400 billion.
Economic Outlook: A Tough Year Ahead
Treasury forecasts New Zealand’s economy to contract by 0.8% in 2025, before rebounding to nearly 3% growth in 2026. Inflation is stabilising near 2%, and the Reserve Bank has cut the Official Cash Rate by 125 basis points since August 2024, potentially lowering borrowing costs for SMEs. However, a weaker economic outlook and reduced tax revenue mean the government is projecting a $10.2 billion deficit in 2025, with a fiscal surplus delayed until 2029. For SME owners, this signals a cautious economic environment where consumer spending may remain subdued, but improving interest rates could ease financing pressures.
Investment Boost: A Game-Changer for SMEs
The standout measure for businesses is the Investment Boost Tax Incentive, allowing SMEs to deduct 20% of the cost of new assets (like machinery or equipment) in addition to regular depreciation. Costing the government $1.7 billion annually, this incentive is projected to increase GDP by 1% and wages by 1.5% over 20 years. For SME owners, this means immediate tax relief when investing in growth, whether upgrading equipment, expanding operations, or adopting new technology. If you’re planning capital investments, now’s the time to act to maximise this deduction and improve your competitiveness.
KiwiSaver Changes: Impact on Employees and Costs
The Budget introduces gradual changes to KiwiSaver, which could affect your workforce and payroll costs. Employee and employer contributions will rise from 3% to 4% over three years, increasing your contribution obligations starting next year. The government’s contribution is halved to 25 cents per dollar (up to $261 annually) and eliminated for high earners over $180,000. Contributions are also extended to 16- and 17-year-olds, with employer matching required from next year. For SMEs, this means higher payroll costs over time, so budgeting for these incremental increases is crucial. On the upside, enhanced KiwiSaver benefits may help attract and retain younger workers.
Health and Workforce Support
A $7 billion health investment, including $447 million for primary care and $604 million for new medicines, could benefit your employees by improving access to healthcare. New 24-hour urgent care clinics in regions like Counties Manukau and Tauranga, plus 12-month prescriptions for eligible medications, may reduce employee downtime and healthcare costs. For SMEs, healthier staff mean fewer sick days and higher productivity. However, the controversial overhaul of pay equity legislation, saving $12.8 billion, may create uncertainty in female-dominated sectors like healthcare, potentially affecting recruitment in industries your business relies on.
Infrastructure and Economic Stability
The Budget allocates $6.8 billion for infrastructure, including transport and recovery from Cyclone Gabrielle and the 2023 Auckland floods. For SMEs in construction, logistics, or tourism, this could translate into new contracts or improved regional connectivity. A $577 million boost to the film industry, increasing the International Screen Production Rebate, may create opportunities for SMEs in the creative and hospitality sectors, especially in regions hosting productions. Additionally, $480 million for law and order, including 500 new police officers, aims to enhance community safety, potentially reducing business-related risks like theft or vandalism.
Social and Tax Policy Shifts
Changes to social programs, like income-testing the Best Start child payment and adjusting Jobseeker benefits, may impact consumer spending power for low to middle-income families who are key customers for many SMEs. However, an extra $14 per fortnight for 142,000 families through Working for Families could slightly boost disposable income, benefiting retail and service-based businesses. The government’s focus on fiscal restraint, capping new spending at $1.3 billion, aims to keep inflation in check, which is good news for SMEs facing rising input costs.
Challenges and Opportunities
While the Investment Boost is a clear win, the Budget’s savings measures include cuts to programs like the free school lunch initiative after 2026. They may face pushback from communities, potentially affecting local demand. SME owners should also be aware of the government’s emphasis on public sector efficiency, which could streamline interactions with agencies but may limit public sector contracts in the short term.
What Should SMEs Do?
- Leverage the Investment Boost: Plan capital investments to leverage the 20% tax deduction.
- Budget for KiwiSaver: Factor in rising contribution costs and communicate changes to employees.
- Monitor Consumer Trends: Adjust marketing and pricing strategies to align with potential shifts in customer spending due to social policy changes.
- Explore Infrastructure Opportunities: Look for contracts or partnerships tied to the $6.8 billion infrastructure spend.
Budget 2025 offers SMEs tools to grow while navigating a cautious economic recovery. By strategically using tax incentives and preparing for cost increases, you can position your business for success.