The New Zealand Government is looking to its newly revealed investment boost initiative, announced in the 2025 national budget, as a key driver of economic growth and productivity.

The budget brought down by finance minister Nicola Willis contained significant cutbacks in public spending, largely through cutting back the previous government’s pay equity scheme, but balanced that with the flagship investment boost, which enables a 20% write-off on the cost of new business assets in the year of purchase.

At the New Zealand Institute of Economic Research (NZIER), chief executive Jason Shoebridge CA says the incentives addressed one of the main issues facing the New Zealand economy: productivity.

“The boost is targeted at encouraging capital investment and, through that, trying to grow productivity,” says Shoebridge.

“We need to do that, and the boost is pretty generous. For example, if you go and build a power station, you’ll get that 20% straight off, so that is significant.”

Businesses also need to have confidence that they would make returns on capital investments and Shoebridge notes that business confidence, which has been fragile, has been tracking higher.

“It will be interesting to see how many businesses take advantage of this in the first year, given that we are trying to find our way out of what has been a pretty deep recession,” he says.

Spending vs growth

He notes that the budget forecast 2026 GDP growth of approximately 3%, up from -0.8% this year, but this was likely to be driven largely by lower interest rates, higher commodity prices and the lower New Zealand dollar.

The government contribution to growth, as measured by Treasury’s fiscal impulse measure, was positive for the next two years, before turning negative.

Shoebridge’s assessment is that, given New Zealand’s challenging fiscal position, the budget largely succeeds in balancing the need to control spending with the need to promote growth.

Super and health

While productivity is a priority, the other main challenge for New Zealand is the ageing population and government spending on the non-means tested superannuation pension and health care.

The budget position is projecting a small downward revision in the current year’s deficit, down to NZ$12.1 billion, and moving to a thin surplus of NZ$200 million by the end of the forecast period in 2028–2029.

Investing in NZ

On the stimulatory side of the equation, the budget also increases the amount of tax-deductible debt foreign investors can use to fund investment in New Zealand.

There is also NZ$6.8 billion in capital spending, with NZ$605 million to be spent on rail infrastructure and NZ$200 million for co-investment in gas fields, a measure that Shoebridge says is also directly linked to productivity.

Another NZ$577 million is invested in the screen production rebate scheme to foster the film industry.

KiwiSaver changes

Less attractive to business will be the staged increase in employer contributions to the KiwiSaver national retirement scheme. Employers, says Shoebridge, would need to look at how they fund this increase and this could mean smaller salary increases and potentially a brake on hiring.

From 1 July 2025, the government is halving its KiwiSaver contributions to 25 cents for every NZ$1 employee contribution, up to a maximum of NZ$260.72. Employers will be required to increase their contributions from 3% to 4% in two phases, with the second stage taking effect on 1 April 2028.

The government is removing the contribution for all KiwiSaver members with taxable income over NZ$180,000 per annum.

The cost of the superannuation system is increasing, helping drive a NZ$19 billion increase in core expenses out to 2029 along with debt interest.

“So even before we think about investing in anything else, those costs are going to track higher,” says Shoebridge.

What about sustainability?

The government does not produce any estimates on the impact of the budget on emissions or the environment. The NZIER uses a framework based on international best practices to make this assessment and, applying this methodology, assesses this year’s budget as neutral.

Based on an initial assessment, at least 6% of the budget initiatives are environmentally unfavourable, with 2% favourable.

Investment in Cook Strait ferries (figures withheld due to commercial sensitivity), the NZ$600 million investment in rail to ease transport congestion and allocating revenue from the International Visitor Levy to conservation and biodiversity are all positive.

Investment in gas exploration is negative, as is capital investment in education and hospitals because of the embedded emissions: the greenhouse gas emissions generated by production and transportation of goods in construction materials.

No big moves

Although Shoebridge gives Willis credit for a fiscally prudent budget, he says the structural issues for New Zealand governments will remain.

“It’s a pretty tough environment to launch a budget and there’s not a lot of room to manoeuvre,” he says.