Key Budget Measures

Corporate Tax Reform: The “Investment Boost”

A $6 billion tax incentive package has been introduced to support capital investment:

• Businesses can now deduct 20% of the value of eligible new assets in the year of purchase, in addition to the usual depreciation schedule.
• This effectively brings forward tax benefits for capital investment, improving cash flow in the short term and encouraging productive reinvestment.

This measure is expected to benefit businesses looking to modernise operations, invest in new equipment, or scale up.

Changes to KiwiSaver

From 2028, employer contributions to KiwiSaver will increase from 3% to 4%, with a phased introduction to ease the transition. In addition:

• The Government’s annual contribution will be halved (currently capped at $521) and means-tested.
• Individuals earning over $180,000 will no longer be eligible for the Government contribution.

These changes reduce the Government’s fiscal obligations but shift a greater portion of the long-term savings burden onto employers and employees.

Operating Allowances and Spending Restraint

The Government has halved its annual operational allowance from $2.4 billion to $1.3 billion — the lowest in over a decade. While total spending will continue to grow in nominal terms, this growth is tightly constrained and reprioritised toward areas such as:

• Health: $5.5 billion in new funding and $1 billion in infrastructure upgrades
• Education: An additional $1 billion across key initiatives
• Defence: A $12 billion boost in response to global security trends

Departments not classified as core priority areas are unlikely to receive new funding, signalling tighter overall government support.

Economic and Fiscal Outlook

Crown Debt to Peak at 46% of GDP

Net core Crown debt is projected to peak at 46% of GDP by 2028 before easing slightly. While this is manageable by international standards, it represents a substantial increase from pre-COVID levels and highlights the fiscal cost of recent economic support measures.

This rise in debt also increases the Government’s debt servicing burden, projected to exceed $12 billion annually by 2029.

Weaker Revenue Outlook

Despite higher nominal GDP projections, core Crown revenue is forecast to be $2.5 billion lower than previous estimates by 2029. Much of this is driven by the reduced corporate tax intake due to the Investment Boost. As a result, operating deficits (OBEGALx) are expected to persist until 2028/29, when a modest surplus of $200 million is forecast.

Policy Continuity: R&D Tax Credits Retained

The Budget retains the current R&D tax incentive scheme, which offers a 15% tax credit on qualifying research and development expenditure above $50,000 annually.

This is a positive outcome for high-growth and innovative businesses, particularly those investing in technology, product development, and process improvements.

Key Takeaways for Business Owners

• Encouragement to invest: Businesses making capital investments can now benefit from accelerated tax deductions.
• Rising employer obligations: Future KiwiSaver contribution increases should be factored into long-term payroll planning.
• Limited government support: Fiscal consolidation means fewer subsidies and less discretionary support outside of priority sectors.
• Ongoing opportunities for innovation: Businesses involved in R&D activities continue to benefit from tax relief under existing schemes.

Disclaimer: This content is for general information purposes only and does not constitute financial or tax advice. Please speak with your SMYD advisor to assess how these changes apply to your specific business situation.