Budget 2025: Government saves $12.8b in pay equity, funnels money at $6.6b tax change to stimulate economy

NZ Herald

22-05-2025

Finance Minister Nicola Willis unveiled the business incentive, which will allow firms to deduct 20% of a new productive asset's value from their tax return.
But any return on that investment might be a long time coming for New Zealand's workers. While Treasury advised that ultimately the incentive would be good for growth, it revised up its unemployment forecast and revised down its wage forecast, prepping New Zealanders for another year with the unemployment rate over 5%.
Willis also announced how the tax incentive, along with other parts of the Budget would be paid for, revealing the amount of money the Government would be saving by reforms to the pay equity regime: $12.8b over four years (a figure that includes changes to how the government approaches the funded sector).
The grand total of cuts in the Budget was $21.4b over four years, meaning more than half of the cuts in the Budget have come from changes to pay equity.
Willis said pay equity costs had 'blown out' saying that in 2020, the Labour Government's pay equity regime was expected to cost just $3.7b over the forecast period.
In the Budget lockup, Willis launched a broadside on Labour alleging the cost of the blowout was 'hidden' by the last Government from the public in order to preserve commercially sensitive negotiations.
How much money Willis has left for new pay equity is also sensitive, so the Government has not revealed how much it has set aside to fund claims brought under the new regime.
Bigger cuts than last year - $4.8b a year
Elsewhere, the Government announced a sweep of initiatives to hack back at the growth of Crown expenses – cuts that are even larger than last year's.
Including the pay equity savings, the Government is 'saving' $4.8b a year from cuts. Last year the equivalent figure was $3.8b or $4.4b if you include the Emissions Trading Scheme.
Student loan borrowers will also start paying more, with the Government freezing the repayment threshold, which usually (though not always) rises with inflation, saving $64m. Every dollar a student loan borrower earns over $24,128 will pay 12 cents off their student loan.
Investment Boost
Treasury estimates the centre piece of the Budget, the depreciation changes will actually lift New Zealand's growth, increasing GDP by 1% and wages by 1.5% - but that lift takes place over 20 years (although half the growth occurs in the next 5).
The new rules will begin today, passing under urgency.
The effect of the tax changes will be to encourage businesses to bring forward investment, stimulating the economy.
Willis quoted from a Regulatory Impact Statement on the change that a large amount of the benefit of the credit would flow through to workers, although Treasury's forecasts show that this has not been enough to stop it from revising work-related changes.
KiwiSaver reforms – Government cuts contribution, asks savers to raise theirs
Alongside the cuts to KiwiSaver, the Government will try to get KiwiSaver users to front up more money themselves, lifting the default rate of employee and matching employer KiwiSaver contributions from 3 % to 4%. This will be optional, people can opt to stay at 3% if they choose.
The new rate will be phased-in. Next year it will go to 3.5% and on 1 April 2028 it will go to 4%.
Younger people will be able to contribute with eligibility extended to 16 and 17 year-olds, who will be able to get employer and Government contributions.
The Government is keen to personalise these changes and has launched a calculator on the Treasury website that calculates what they will mean to people's savings over their lifetime.
Do you have questions about the Budget? Ask our experts - business editor at large Liam Dann, senior political correspondent Audrey Young and Wellington business editor Jenee Tibshraeny - in a Herald Premium online Q&A here at nzherald.co.nz at 9.30am, Friday, May 23.