inflation Archives | Edmonds Judd

Budget 2025

June 4, 2025

Budget & Taxation, Business & Investment, Economy & Finance, Politics & Government, Public Policy

‘Fiscally conservative’?

On 22 May, the Minister of Finance, the Hon Nicola Willis, presented what she had termed a ‘No BS Budget.’ It is officially entitled ‘The Growth Budget.’

Described by the minister as being ‘fiscally conservative,’ public expectations were not high for a lolly scramble of funding for new initiatives.

In the weeks leading up to the Budget, the minister drip-fed announcements of about $1.9 billion of new spending and, amongst others, a significant ‘restructure’ to the pay equity regime. As a result,

it was anticipated that on Budget Day, there would be what the minister has called ‘reprioritising of spending.’

Over the past few years, New Zealand has experienced an extended period of high inflation, high interest rates and low growth. With this 2025 Budget and despite worldwide geopolitical and geoeconomic tensions, the minister has indicated New Zealand’s fiscal outlook will gradually recover, despite an initial period of retraction. The government now expects what the minister has called ‘a modest surplus’ by 2028–29.

Good news for business

Called Investment Boost, businesses can now write off 20% of the value of productive new assets such as machinery, tools and equipment from that year’s taxable income – in addition to regular depreciation rates. By encouraging investment, the government expects a 1% increase in GDP and wages by 1.5% over the next 20 years, with half of these gains being in the next five years.

Greeted positively by the business sector, these new rules came into force on 22 May, passed under urgency after the Budget was presented.

Intended to attract foreign investment to this country, the government has created a new agency, Invest New Zealand. The agency’s objective is to create a vibrant investment market in this country. Initially collaborating with New Zealand Trade and Enterprise, Invest New Zealand has a clear direction to attract international capital, ideas and expertise in order to lift wages and grow the country’s economy.

Additionally, the government says it will be easier for startups to compete for talent by changing how employee share schemes are taxed.

Supporting New Zealand’s strong position in the film industry, screen production rebates will be renewed.

Government cuts contributions to KiwiSaver

The government’s contribution to KiwiSaver accounts is to be halved. Until now, KiwiSaver account holders have received $521 a year from the government; this is to be cut to $260.72.

In addition, the threshold for the minimum ‘default’ rate of employee and matching employer KiwiSaver contributions is to be increased from 3% to 4%; this is to be a two-step process over the next three years. This will be optional; KiwiSaver account holders may opt to stay at 3%. With many KiwiSaver balances ‘modest,’ the minister says this change should encourage New Zealanders to save more for their retirement.

More positive news for New Zealand’s younger taxpayers is that 16 and 17-year-olds will start to receive government contributions to their KiwiSaver from July (currently there is no contribution). Requirements for employers to match these deposits will start in 2026.

Benefits

Jobseeker and emergency benefits to be means tested: Not anticipated by pundits, 18 and 19-year-olds will have their Jobseeker and emergency benefits tested against their parents’ incomes, although there are some exemptions. The threshold against which these benefits will be measured is yet to be decided.

Medicine prescriptions: The length of a prescription is to be extended from three months to 12 months.

Working for Families: Targeted at low to middle-income families with children, the family income threshold and abatement rate will increase by an average of $14/fortnight. The additional cost for this will be funded by extending the income testing for the Best Start tax credit to include the first year after having a child, as well as the current situation of means testing for the second and third years. Payments will cease when a family’s income reaches $97,000 a year.

SuperGold card: A rise in the income threshold will allow a rates rebate for 66,000 additional lower income households with a SuperGold cardholder.

Disability Support Allowance: $760 million has been allocated to support the disability sector. The government has called this a ‘seismic shift’ in funding.

More . . .

Already announced and included in Thursday’s Budget is more funding for health, education, law and order, and other frontline public services. This includes:

Significant additional funding for the education sector for children with additional learning needs, schools/early childhood education and tertiary operational grants; additional help with maths skills; and lifting school attendance,
Nelson Hospital is to undergo a much-publicised need for redevelopment, together with Wellington’s emergency department. Auckland hospitals are to be upgraded,
After decades of underinvestment, the country’s rail will receive a $460 million upgrade to the metro and regional rail networks, and
The Defence Force will receive significantly more investment to boost New Zealand’s capabilities for the army, navy and air force, and in cyberspace.

To read the Budget in more detail, click here for the minister’s Budget speech.

If you would like to discuss the implications of the government’s business incentives, please don’t hesitate to contact us.

Major changes ahead for New Zealand’s financial landscape.

The economy – tougher times ahead?

August 4, 2022

Amanda Leahy

First Job, Your Own Business

Guest editorial by Miles Workman, Senior Economist, ANZ

In another of our occasional Fineprint guest editorials, we introduce the ANZ’s Senior Economist, Miles Workman, who has written on the state of New Zealand’s economy. It would be fair to say the economic outlook in the short-to-medium term is not massively rosy, but there is, however, some solace in that the Reserve Bank wants to contain inflation as much as possible.

Global and domestic inflation risks remain intense, but front-loaded official cash rate (OCR) hikes by the Reserve Bank of New Zealand (RBNZ) are mitigating against the risk that inflation continues to go the wrong way.

Many other central banks across the globe are now underway with their tightening cycle too and making all the right noises. ANZ Research fully expects them to tame inflation in time. The question is, how much tightening will it take and how much economic pain will it require?

War, high inflation, acute capacity constraints, falling house prices and weak consumer and business confidence all suggest downside risks to economic activity. But Covid-volatility is making it hard to separate the noise from the signal.

Provided New Zealand manages to avoid lockdowns in 2022, GDP data should settle down over the second half of the year (Q3 GDP data is released in December 2022).

That means Kiwis need to continue to look beyond GDP for a steer on economic momentum. And there are plenty of indicators suggesting underlying momentum is slipping.

Despite the very low unemployment rate, ANZ’s Consumer Confidence survey shows confidence is softer than during the 2008-09 recession, which is not a time retailers remember fondly.

While building consents are at high levels, ANZ Research’s Business Outlook suggests residential construction is poised to slow. Building cost inflation, construction delays and difficulty achieving presales as house sales and prices fall could very well see some of these consented projects scrapped. Anecdotally, that’s happening already.

There are other reasons to think tougher times lie ahead:

While New Zealanders are now free to travel abroad, international tourism isn’t expected to start picking up meaningfully until the 2022-23 summer – so tourist operators could have to navigate through a tough winter.
Conditions for key exporters are tough. Key export commodity prices are now slipping with global consumers less willing, or able, to pay top dollar for our produce. Soaring fertiliser prices along with difficulties in getting product to market and finding workers are also weighing on agricultural production.
Households are going backwards financially as inflation outpaces income growth. While ANZ Research expects growth in real (CPI-adjusted) hourly earnings will be positive by the end of the year, it’s a mixed blessing for the RBNZ that is, quite rightly, concerned about the possibility of a wage-price spiral developing.

All up, the drivers of economic momentum are particularly complex right now.

Overall, 2022 (which still has some Covid-related volatility to work through) should see GDP growth come in a little below trend (2.2% over the year to December), slipping further in 2023 (2.0%) and 2024 (1.7%). Risks to growth are to the downside.

Inflation will ease; it’s just a question of how high rates need to go (and for how long)

At around 7% year on year, CPI inflation is running at a 30-year high. While there are some significant inflation pressures stemming from global developments, domestic inflation is the primary concern for the RBNZ.

Non-tradables inflation (aka domestic inflation) is running closer to 6% year on year. This is the sticky kind of inflation that tends to be difficult to tame, and right now it’s far too high to be consistent with the RBNZ’s inflation target.

ANZ Research expects OCR hikes, supported by the general monetary tightening underway globally, will successfully take the heat out of inflation in time.

Given current inflation and capacity stretch, ANZ Research expects the RBNZ to deliver more out-sized (50 basis point) hikes in the near term, before pivoting to 25 basis point hikes from October, taking the OCR to a peak of 3.5% in November 2022.

It’s a fine balance for the RBNZ as it weighs up the risk of oversteering (engineering a hard landing for housing, economic activity and inflation) against ensuring inflation pressures don’t spiral out of control.

All up, the rebalancing act the RBNZ and other central banks are currently performing is riddled with risks and uncertainties. But the one thing we can be sure of is that they will be successful in taming inflation, it’s just a question of how high (and for how long) rates need to go.

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Fineprint may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022. Editor: Adrienne Olsen. E-mail: [email protected]. Ph: 029 286 3650

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