Budget 2025

One of the most noticeable shifts in BUDGET 2025 is the Government’s expanded use of means testing – where eligibility for payments or subsidies depends on a person’s or household’s income. While New Zealand Superannuation remains seemingly forever untouched (Winston Peters can take the credit for that), several other areas are now subject to tighter income-based rules:

• From April 2026, the first year of the Best Start Payment will be fully income-tested, with payments cut off for families earning over $97,000 per year.
• Government annual contributions to KiwiSaver (the lump you get at the end of the year) will no longer be available to individuals earning over $180,000 per year and the lump is being halved for everyone.
• In 2027, the Jobseeker Benefit for 18–19-year-olds will be income-tested against parents’ earnings, meaning many young people will no longer qualify unless their parents are on lower incomes or cannot otherwise support them; details yet to be determined.

This approach reflects the Government’s focus on targeting support, while also cutting costs to help return the budget to surplus in the long-term. However, it also raises questions about fairness, especially for middle-income families who may now miss out on support they previously received.

One of the more curious inclusions in BUDGET 2025 is the plan to tighten Jobseeker eligibility for 18–19-year-olds, but not until 2027. On the surface, it makes complete sense: encouraging (pushing) young people into work or study is a positive step, and it could increase interest in trades like automotive. After all, work or study … why not both? Many of them will end up in vocational pathways, especially on-the-job training like apprenticeships. That means now is the time to ensure the system is ready – with the right funding, support for employers and a clear pipeline from school to skilled work. Automotive businesses could be a big part of the solution, if the investment follows.

But the long lead time and lack of detail suggest the policy is half-baked, raising questions about how it will be implemented and whether the vocational system will be ready to absorb the extra demand.

The budget does not include any new funding or expansion for the Apprenticeship Boost scheme; the previously announced narrowing of the scheme remains in place. While the budget does invest in broader vocational education and training, including increased subsidies and support for enrolments, there is no direct reinvestment of Jobseeker savings into employer-facing apprenticeship support at this stage. That is a shame, a missed opportunity. Where does the Government think these young people will end up? University? Maybe. In the trades? Probably. They could saturate the polytechnics with that funding as a Hail Mary … wait … maybe that’s the plan?

Luckily, there’s still plenty of time to have conversations about this.

For now, it’s more of a signal than a solution but one that employers should keep an eye on. It could be a great thing for our workforce pipeline, but for the foreseeable future, not a lot will change.

From 1 April 2026, the default KiwiSaver contribution rate will rise to 3.5%. Then, from 1 April 2028, it will increase again to 4%.

These changes apply to both employees and employers. For employers contributing at the default rate, this means higher payroll costs. While employees will be able to opt down to 3% temporarily, employers will still need to prepare for the eventual increase to 4%.

For the few businesses using total remuneration packages, where KiwiSaver is included in the salary, this may not result in higher costs. But for most others, it will be an added expense. For example, if you have an employee earning $80,000 per year, your current employer contribution at 3% is $2,400 annually. Under the new 4% rate, that increases to $3,200 – an extra $800 per employee each year. It’s unclear if the Government is trying to encourage businesses to move towards KiwiSaver inclusive salary packages.

The budget lands at a time when New Zealand’s economy is showing signs of recovery. According to Treasury’s latest forecasts, inflation is expected to fall to 2.5% by mid-2026, returning to the Reserve Bank’s target band. Meanwhile, wages are forecast to grow by 4.3% in 2025, outpacing inflation and delivering income gains for workers. This is good news for both households and businesses, as it supports consumer spending and eases cost pressures.

Treasury is also forecasting the creation of 240,000 new jobs over the next four years, further strengthening the labour market. This projection is based on several key factors:

• Stronger GDP growth, forecast to reach 2.9% in 2025/26 and 3% the following year.
• The expected impact of the Investment Boost tax policy, which is designed to stimulate business investment, productivity and job creation.
• A general economic recovery supported by lower inflation, rising wages and improving consumer confidence.

Startups are also set to benefit from changes to employee share scheme taxation, making it easier for them to attract and retain talent in a competitive global market. The specific change is the introduction of a tax deferral regime.

This means employees who receive shares as part of their remuneration will be able to defer paying tax on those shares until a later point – typically when the shares become more liquid or are sold. This is a significant shift from the current system, where tax is usually payable when the shares are granted or vested, regardless of whether the employee can sell them.

One of the most talked-about cost-saving moves in BUDGET 2025 is the Government’s overhaul of the pay equity system, expected to save a staggering $2.7 billion a year, or $12.8 billion over four years. Critics say it undermines progress on equity. The Government says it’s about fiscal responsibility and frankly, some of the headlines recently may be overblown or very political at a minimum.

Under the old rules, workers in female-dominated sectors could claim they were underpaid by comparing their roles to those that ‘it could be argued were of equal value’, i.e. other, different, roles in male-dominated fields. This led to a few eyebrow-raising comparisons – librarians to fishermen, nurses to prison guards – which the Government argues were too subjective and costly.

Now, the bar to prove this is higher. Workers must show clear evidence that their lower pay is due to sex-based discrimination, not just that they work in a female-dominated field. As a result, 33 claims have been paused or dropped, which was widely covered by media.

This doesn’t roll back the principle of equal pay for equal work that still stands. But it does mean future pay increases will need to come through collective bargaining, not the types of equity claims under the previous regime. For business owners, it’s a sign of a more hard-nosed approach to public spending.

As a former political spokesperson for defence, I thought I’d slip this one in – though I’ve found a sliver of relevance for our industry to justify it.

The budget delivers a significant uplift in defence funding, with $477 million in new operating spending and over $1 billion in new capital investment allocated to the New Zealand Defence Force. This is part of a broader strategy to modernise defence capabilities in response to a more complex and uncertain global environment. The funding will support upgrades to equipment, infrastructure, and personnel readiness. An additional $1.6 billion is earmarked for defence in BUDGET 2026, signalling a long-term commitment to strengthening national security.

Why is this relevant if not at least interesting? As the Defence Force ramps up recruitment and training, it should attract young people with mechanical, engineering, or technical interests – the same talent pool automotive businesses rely on for apprenticeships and skilled roles. Employers may need to compete more actively for talent or consider how to position automotive careers as equally rewarding and future focused. There you go, I made it relevant.