The Government’s Budget 2025 Economic and Fiscal Update (BEFU) was released on 22 May. Here are the key highlights relevant to your business:
Economic Conditions
- GDP Growth is forecast at 2.9% for the year ending June 2026, revised down due to global trade tensions and weaker domestic demand.
- Inflation is expected to remain steady at 2.1%, within the Reserve Bank’s 1–3% target band.
- Interest Rates have declined, with a 200 basis point cut since August 2024. Further easing is possible to stimulate the economy.
Government Spending & Investment
The operating allowance has been reduced to $1.3 billion, the lowest in a decade – signalling a clear shift to fiscal restraint.
New investment is focused on:
- Defence and Foreign Affairs
- Health sector initiatives
- Kiwisaver reforms
- Infrastructure maintenance, not expansion
Tax and Business Impacts
A new tax incentive has been introduced to encourage business investment in productive assets, aiming to:
- Boost GDP by 1% over 20 years
- Raise average wages by 1.5%
- Further advice to follow on eligibility and implementation
Fiscal Position
Budget deficit for the current year is forecast at $14.7 billion, slightly better than previously expected.
Net core Crown debt is projected to peak at 46% of GDP in 2027/28, with ongoing efforts to reduce it thereafter.
Risks and Challenges
Public sector cuts and project cancellations (especially in Wellington) may have flow-on effects on service providers and employment.
Exporters may continue facing headwinds due to global trade frictions.
What Budget 2025 means for your business:
- Now is a prudent time to review your capital investment plans and consider eligibility for new incentives.
- With tighter government spending and ongoing economic uncertainty, cash flow forecasting, tax planning, and debt servicing strategies are more important than ever.
- If you’re exposed to public sector contracts or export markets, further risk management strategies may be needed.
We’re here to help you interpret what this means for your specific business situation. If you’d like to book a review or discuss your next steps, get in touch.
