Budget 2025: Budget at a glance

Has Budget 2025 shifted the dial on growth? 

Budget 2025 is challenged with balancing fiscal restraint and economic growth at a time where core public services such as health, education and superannuation are under strain.  

A smaller economy than expected 

The key to the size of the tax take is the size of the nominal economy. Budget 2025 projects nominal GDP to grow by 4.9% for 2025-26, which is less than the 5.4% forecast in the most recent Half Year Economic and Fiscal Update (HYEFU).  

Economic growth in the medium term has also been downgraded for 2026-27. Treasury is forecasting nominal GDP growth of 4.7%, compared to previous HYEFU projections of 5.0%. Forecast growth for 2027-28 has been slightly upgraded in Budget 2025, with nominal GDP growth estimated at 4.8% compared to 4.7% in HYEFU.  

No margin for error  

Plotting a path back to surplus is critical for New Zealand’s prosperity. In a world where global risks are rising, a sound Budget position represents a form of insurance.  For example, mitigating the effects of tariffs and trade wars, or bolstering defence spending are only possible with a structurally sound Budget.  

To maintain its goal of returning to surplus by 2027-28, the Government reduced its operating allowance from $2.4 billion to $1.3 billion, similar to the level immediately following the Global Financial Crisis, as shown in the figure below. This reduction is required to balance the evolving fiscal and economic environment, however, the forecast return to surplus by 2028-29 has narrowed significantly. Budget 2025 is now estimating a $200 million surplus by 2028-29, compared to a $1.9 billion surplus in HYEFU 2024.     

The Budget outlook is getting worse, not better: 

• An underlying total Crown operating balance (OBEGALx) of $12.1 billion in deficit is forecast for 2025-26, which represents a worsening outlook compared to HYEFU forecasts of $10.5 billion in deficit.  

• Budget 2025 projects a net core Crown debt rise from 43.9% of GDP in 2025-26, to 45.5% by 2028-29. Compared to HYEFU, net debt has been revised downwards from 45.1% in 2025-26 and upwards from 45.2% in 2028-29.  

Boosting economic productivity 

A key challenge for the New Zealand economy is low and now declining productivity. This, combined with less Government spending, an ageing population and increasing brain drain acts as a drag for long term economic growth.  

Budget 2025 proposes some measures that align with a productivity-led agenda; however they take an “around the edges” approach rather than the bold action New Zealand needs to address its productivity challenge.  

One promising initiative is providing an additional $100 million for the Elevate fund, which aims to facilitate a thriving venture capital industry in New Zealand, and thereby ensuring high-growth New Zealand businesses have access to the capital they need to take off.  

The Investment Boost brings about changes to corporate tax settings through accelerated depreciation on new ‘productivity-boosting’ assets which will allow businesses to front-load depreciation on those assets. This will likely increase domestic investment and attract foreign direct investment that could support economic growth and productivity in the long term.  

Other notable measures are the establishment of the Primary Sector Growth Fund, a Gene Technology Regulator, the establishment of Invest New Zealand, and early education support.  

Looking forward 

The 2025 Budget navigates a fine line. It must invest enough to have an impact on key priority areas, such as productivity, to support economic growth, whilst maintaining fiscal discipline. Although Budget 2025 outlines a range of positive initiatives, it remains to be seen whether these will collectively make a significant positive impact on the central issue of productivity and economic growth.