2025 New Zealand
Budget Report
This Budget Report has been prepared by Wolters Kluwer in-house analysts with the assistance of specialist practitioners from Bell Gully. It covers announcements of interest to tax practitioners and the business community.
Prepared by Wolters Kluwer in-
house analysts with the assistance of specialist practitioners from Bell Gully.
Wolters Kluwer
Wolters Kluwer (WKL) is a global leader in professional information, software solutions, and services for the health, tax & accounting, governance, risk & compliance, and legal & regulatory sectors. We help our customers make critical decisions every day by providing expert solutions that combine deep domain knowledge with specialised technology and services.
Bell Gully
Bell Gully is a leading New Zealand law firm. We have experts in all areas of commercial law. We cover the broad areas of banking and finance, corporate, disputes and litigation, infrastructure, real estate and tax. We are recognised as leading New Zealand tax lawyers, with specialisation in corporate tax, GST, personal tax, trusts, and tax litigation. We achieve excellent outcomes for domestic and international clients, advising on all tax-related matters.
All rights reserved. No part of this work covered by copyright may be reproduced or copied in any form or by any means (graphic, electronic or mechanical, including photocopying, recording, recording taping, or information retrieval systems) without the written permission of the publisher.
No person should rely on the contents of this publication without first obtaining advice from a qualified professional person. This publication is sold on the terms and understanding that (1) the authors, consultants and editors are not responsible for the results of any actions taken on the basis of information in this publication, for any error in or omission from this publication, and (2) the publisher is not engaged in rendering legal, accounting, professional or any other advice or services. The publisher and the authors, consultants and editors expressly disclaim all and any liability and responsibility to any person, whether a purchaser or reader of this publication or not, in respect of anything, and of the consequences of anything, done or omitted to be done by any such person in reliance, whether wholly or partially, upon the whole or any part of the contents of this publication. Without limiting the generality of the above, no author, consultant or editor shall have any responsibility for any act or omission of any other author, consultant or editor.
Budget Highlights
KiwiSaver and tax changes announced in Government’s growth budget
The Government has introduced a number of tax changes as part of the Budget 2025 to help deliver one of its key objectives of growing the New Zealand economy. To promote growth and productivity, the Government has looked at ways to encourage foreign direct investment (FDI), attract talent and improve business settings.
The Government is setting aside $10 million in the Budget to assist start-up companies attract talent by deferring the recognition of taxable income that arises on employee share scheme (ESS) benefits. Broadly, any tax liability arising in respect of employee share scheme benefits would be deferred to the point in time when a “liquidity event” occurs. The Government has also committed to going ahead with the introduction of an alternative “revenue account” method of calculating foreign investment fund (FIF) income for migrants and returning New Zealanders to ease cashflow.
To bolster New Zealand’s infrastructure, $65 million will go towards easing the thin capitalisation rules for FDI into qualifying private infrastructure projects. The Government is currently consulting on 2 options that will allow full interest deductibility on eligible projects and debt funding in an endeavour to promote FDI in New Zealand.
The Budget also sees the introduction of “Investment Boost”, a tax incentive to lift business investment in productive assets. The tax incentive will allow a one-off deduction equal to 20% of the cost of an asset in the year of purchase, in addition to depreciation deductions.
To facilitate retirement savings, KiwiSaver employee and employer contribution rates will increase from 3% to 3.5% commencing 1 April 2026, followed by a further increase to 4% from 1 April 2028. However, the annual Government contribution will be halved, reducing the maximum contribution from $521.43 to $260.72 per year. Those earning above $180,000 per annum will receive no Government contribution at all with effect from 1 July 2025.
The recent increase in Inland Revenue audit and debt enforcement activity is likely to continue with the help of further funding announced in this year’s budget. An additional investment of $35 million per year is planned over the next 4 years.
The Government has also removed the Digital Services Tax (DST) Bill from its legislative programme. The preferred option continues to be the adoption of an internationally agreed OECD solution for taxing multinationals on digital services.
Other key announcements include:
Education
$646 million to support children with additional learning needs.
A $140 million package towards strengthening school attendance.
$100 million to improve maths education in schools by funding maths intervention teachers and small-group maths tutoring.
Health
$5.5 billion for hospital and specialist services.
Over $1 billion for upgrading health infrastructure, including Nelson Hospital, Wellington Emergency Department and Auckland hospitals.
$447 million to expand urgent and after-hours health care nationally.
Social services
$275 million towards the creation of a Social Investment Fund to improve the delivery of social services to families.
Film and television
$577 million towards the International Screen Production Rebate.
Law and order
$480 million additional funding to support frontline policing.
$472 million towards managing prison growth.
$246 million to improve access to the justice system and reduce court delays.
$35 million for Customs to combat drug and organised crime.
Transport
$460 million to renew the freight rail network and $143 million to replace and upgrade the Auckland and Wellington metropolitan rail networks.
Defence
$660 million towards improving core Defence Force capabilities.
$368 million for the support of overseas development assistance particularly to the Pacific region.
Investment Boost
Ministerial statement
Investment Boost allows a business to immediately deduct 20 per cent of the cost of a new asset, on top of depreciation, meaning a much lower tax bill in the year of purchase.
Editorial comment
The headline tax change in this year’s Budget is Investment Boost, which is designed to encourage taxpayers to make growth-enhancing investments now and into the future.
Taxpayers are able to immediately claim a deduction for 20% of the cost of qualifying assets that are first used or available for use on or after 22 May 2025, in addition to the standard depreciation deductions available to the taxpayer. Once a deduction for Investment Boost has been claimed, depreciation deductions going forward are quantified as if the cost of the asset was reduced by 20%.
Investment Boost applies to the purchase of most assets which are depreciable property for tax purposes and certain assets that are allowed depreciation-like deductions but which are not depreciable property. It is important to note that Investment Boost also applies to the purchase of new commercial and industrial buildings (which are depreciable assets but which have a depreciation rate of 0%). The inclusion of commercial and industrial buildings is noteworthy, given that the Government had previously removed the ability to claim deductions for depreciation on commercial buildings from the 2024/25 and later income years.
Assets which are not covered by Investment Boost include assets which have been previously used in New Zealand, land, residential buildings, fixed life intangible assets and assets which are fully expensed under other rules.
Construction projects commenced prior to 22 May 2025 may be eligible for an Investment Boost deduction, provided that the assets are used or available for use for the first time on or after 22 May 2025 and meet certain other requirements.
There is no cap on the number of assets for which an Investment Boost deduction can be claimed. Nor is there a cap on the quantum of the Investment Boost deduction for a taxpayer.
The Investment Boost deduction operates in the same way as a depreciation deduction to reduce an asset’s adjusted tax value. A taxpayer who has claimed an Investment Boost deduction may derive income similar to depreciation recovery income if the asset is disposed of and the consideration received is more than the asset’s adjusted tax value.
At a cost of $6.6 billion over the next 4 years, the Budget papers note that over the next 20 years, Treasury and Inland Revenue forecast that Investment Boost will lift New Zealand’s capital stock by 1.6%, GDP by 1% and wages by 1.5%.
Invest New Zealand
Ministerial statement
Invest New Zealand will partner with multinational corporations and foreign investors, with a particular focus on backing sectors that create high-value jobs and help lift productivity.
Editorial comment
The Invest New Zealand Bill will establish Invest New Zealand, a new autonomous Crown entity which will act as an investment promotion agency for New Zealand.
Invest New Zealand will work alongside multinationals and foreign investors to attract skilled talent and global capital to come to New Zealand to increase long-term economic growth across critical, high-value sectors of the economy such as technology, science and innovation.
The Hon Todd McClay, Minister for Trade and Investment, announced that Invest New Zealand will undertake activities including:
promoting investment in advanced sectors with strong growth potential
attracting new capital to innovative New Zealand businesses and research institutions
encouraging global companies to expand their research and development footprint in New Zealand, and
helping to build the skilled workforce needed to support an innovation-driven economy.
$85 million has been set aside in the Budget over the next 4 years to fund the establishment and operations of Invest New Zealand.
Pre-Budget tax announcements
Prior to Budget night, the Government announced 3 significant tax announcements:
Potential reforms to the thin capitalisation rules for infrastructure investments.
Deferral of the taxing point for certain ESS.
Discharge of the DST Bill.
We comment on each of these pre-Budget tax announcements below.
We anticipate that potential reforms to the thin capitalisation rules and the deferral of the taxing point for certain ESS will be introduced with the next omnibus tax Bill expected to be released in August 2025.
Potential reforms to the thin capitalisation rules for infrastructure investments
Ministerial statement
… there is a risk that the [thin capitalisation] rules may be deterring investment, particularly in capitalintensive infrastructure projects that are typically funded by large amounts of debt.
Editorial comment
The Budget sets aside $65 million over the next 4 years for potential changes to the thin capitalisation rules, following the outcome of consultation on the officials issues paper “Thin capitalisation settings for infrastructure” (the Issues Paper) released by Inland Revenue.
New Zealand is reliant on FDI to meet its significant infrastructure deficit. The Government is concerned that the thin capitalisation rules may be an impediment to such FDI in New Zealand.
Broadly, New Zealand’s thin capitalisation rules are aimed at limiting the amount of tax-deductible debt that a company can recognise for tax purposes, relative to the company’s assets. In the case of inbound investment into New Zealand, interest deductions on the debt of a company will be disallowed to the extent that the company’s:
New Zealand group debt percentage exceeds 60%, and
the New Zealand group debt percentage exceeds 110% of the worldwide group debt percentage.
In 2018, a specific exemption to the thin capitalisation rules was introduced to incentivise investment for public private partnership (PPP) infrastructure projects undertaken with the Crown or a public authority and approved by the Minister of Finance. Broadly, the exemption allows the PPP to take on
more debt than generally allowed under the thin capitalisation rules, provided that the debt is thirdparty debt (or like third-party debt) that has limited recourse to the assets and income of the project.
The Issues Paper puts forward 2 potential solutions to remove potential impediments to FDI in New Zealand infrastructure caused by the thin capitalisation rules:
A targeted rule allowing interest on third-party limited recourse debt for eligible infrastructure projects to be fully deductible, drawing on elements of the specific exemption for PPPs.
A more general rule (ie not limited to infrastructure projects) that applies to third-party limited recourse debt.
The closing date for submissions on the Issues Paper is 19 June 2025.
Deferral of taxing point for certain ESS
Ministerial statement
The Budget sets aside another $10 million to defer tax liability of some employee share schemes to help startups and unlisted companies.
Editorial comment
Proposals to defer the share scheme taxing date for employees of start-up companies and unlisted companies was first consulted on in May 2017, when the ESS rules were undergoing significant reform. Inland Revenue again consulted on these proposals in January this year in an officials issues paper “Taxation of employee share schemes: start-up companies” (the ESS Issues Paper). Budget 2025 sets aside $10 million over 4 years to implement such proposals.
Broadly, under an ESS, an employee is taxable on the difference between the market value of the shares received and any consideration paid for those shares. The share scheme taxing date arises when the shares are held by, or for the benefit of, the employee on the same basis as a non-employee shareholder (ie when all material conditions and contingencies of ownership and retention of the shares have ceased to exist).
The current formulation of the share scheme taxing date can be problematic for employees of startup companies and unlisted companies for 2 reasons:
Valuation: While Inland Revenue has released guidance on determining the market value of shares under an ESS, it can be difficult to determine the market value of the shares that an employee receives in an unlisted company, and this will often require an independent valuation which increases compliance costs.
Liquidity: There is often no active market for shares in start-up companies or unlisted companies. An employee of a start-up company or unlisted company who receives shares in an ESS is therefore unlikely to be able to sell some of these shares to finance their tax liability, and will therefore need to find other ways of satisfying their tax liability.
Deferring the share scheme taxing date until a liquidity event (for example, where the shares are sold or listed on an exchange) should mitigate the valuation and liquidity issues outlined above. There would be a readily ascertainable value for the shares that would not require an independent valuation to be made, and also an employee should be able to either have the cash proceeds available from a sale or be able to sell the shares when those shares are listed to finance their tax liability.
Issues in relation to the scope of the deferral regime such as which companies qualify as “start-up companies”, whether the regime is compulsory or elective and if so, who makes the election, and what qualifies as a “liquidity event” were canvassed in the ESS Issues Paper. It will be interesting to see where the boundary lines of the deferral regime are drawn when the Bill introducing these reforms is eventually released.
DST Bill
Ministerial statement
We have been monitoring international developments and have decided not to progress the Digital Services Tax Bill at this time. A global solution has always been our preferred option, and we have been encouraged by the recent commitment of countries to the OECD work in this area.
Editorial comment
It has been announced that the DST Bill was being discharged from the legislative programme. The DST Bill had been introduced in August 2023 and had remained on the legislative programme ever since, without having received a first reading in Parliament.
The Government’s view appears to be that sufficient progress is being made on the OECD’s Pillar One to justify discharging the DST Bill.
Forecasted revenue of $119.8 million per annum from a future enactment of the DST Bill is no longer being taken into account in the Budget.
KiwiSaver adjustments
Ministerial statement
Budget 2025 improves KiwiSaver to encourage Kiwis to save more for their first home and retirement, while making the scheme more fiscally sustainable.
Editorial comment
Significant changes to KiwiSaver are proposed in the Budget, impacting the approximately 3.3 million New Zealanders who are KiwiSaver members. The changes will impact both the default rate of contributions for employees and employers, as well as the Government contribution.
Increases in the default rates for employee and employer contributions will be gradually phased in over the next few years:
increasing from 3% to 3.5% from 1 April 2026, and
increasing from 3.5% to 4% from 1 April 2028.
While the default rates for employee and employer contributions will gradually be phased in, from 1 February 2026 KiwiSaver members will be able to apply for a temporary rate reduction from the proposed increased rates and instead contribute at the current default rate of 3% for a period of between 92 days and 12 months (with that lower rate to be matched by their employer). There is no limit on the number of rate reductions a KiwiSaver member would be able to receive. This is designed to ensure that KiwiSaver members can afford what they are contributing to KiwiSaver.
The Budget papers forecast that changes to the Government contribution should save around $2.5 billion over the next 4 years. The changes to the Government contribution include:
The Government contribution is to be halved from 1 July 2025, decreasing from the current rate of 50 cents for each dollar a member contributes each contribution year (up to a maximum contribution of $521.43) to 25 cents for each dollar a member contributes for each contribution year (up to a maximum contribution of $260.72).
KiwiSaver members with an income of more than $180,000 of taxable income per annum will no longer be eligible to receive the Government contribution from 1 July 2025.
Note that the proposed changes to the Government contribution will not impact the current contribution year ending 30 June 2025. The Government contribution in respect of the contribution year ending 30 June 2025 is due to be paid between July and August 2025.
In addition, eligibility for KiwiSaver membership will be expanded to include 16- and 17-yearolds. Those who choose to join KiwiSaver will now have access to both employer and Government contributions.
Increased funding for Inland Revenue compliance activities
Ministerial statement
The Government will boost its investment in chasing tax evaders.
Editorial comment
The Budget provides an additional $140 million of funding to Inland Revenue over the next 4 years, in addition to the continuation of $106 million of funding over the next 4 years that had initially been earmarked in Budget 2022 for increased tax compliance and debt management activities.
The Budget papers forecast that the increased investment in compliance and debt management activities will have a return of 4 to 1 in 2025/26 and 8 to 1 in 2026/27.
Capital expenditures
Ministerial statement
Budget 2025 allocates $6.8 billion of capital expenditure.
Major investments in new and upgraded hospitals, mental health facilities, school buildings, rail and roads across the country are being funded in Budget 2025.
Health
Ministerial statement
We are making the long-overdue investments needed to modernise our hospitals and strengthen our health system.
Modern reliable infrastructure will help deliver more for patients, reduce waiting lists, and ensure Kiwis can get the timely and quality healthcare they expect and deserve.
Editorial comment
A major redevelopment of Nelson Hospital is planned. The 2 main buildings are to be renovated and seismically strengthened, and a new 128-bed inpatient building is expected to be constructed by 2029. A new emergency department will be built at Wellington Regional Hospital, in addition to the renovation of other units and blocks at the hospital. Critical infrastructure at Auckland City Hospital, Greenlane Clinical Centre and Palmerston North Hospital is to be upgraded and improved.
The Hon Simeon Brown, Minister of Health, noted that the Budget announcement is in addition to the $6.39 billion of infrastructure investment already taking place to support Health New Zealand deliver modern and reliable health infrastructure to New Zealanders.
Defence
Ministerial statement
Our people are being called upon to go more places, more often and for longer to play New Zealand’s part in contributing to global security. This funding will enable them to do that.
Editorial comment
$2.7 billion of capital expenditure is to be invested in significant upgrades to defence hardware and infrastructure over the next 4 years as part of the Budget. Defence spending is forecast to hit 2% of GDP by 2032/33.
In terms of defence hardware, 2 Boeing 757’s that support military operations and deployments, humanitarian and disaster relief support and trade and diplomatic missions are to be replaced, along with the Seasprite maritime helicopters that operate from the Royal New Zealand Navy’s warships. In addition, a deployable counter-drone system is to be acquired that can be set up in a fixed location to disable drones and other uncrewed aerial systems that pose threats to personnel and New Zealand Defence Force hardware.
Defence infrastructure will also be updated, with detailed design work to be undertaken regarding the future of the Devonport Naval Base as well as further investment in constructing and renovating homes for families of those serving in the New Zealand Defence Force.
Social welfare measures
Changes to Working for Families, community housing funding and support for food banks are included in the 2025 Budget.
Working for Families
Ministerial statement
… the Government is lifting the Working for Families abatement threshold from $42,700 to $44,900 and raising the abatement rate from 27 per cent to 27.5 per cent. Families with incomes close to the new threshold will get greater additional payments – up to $23 a fortnight.
The cost of the extra support will be met by income testing the first year of the Best Start tax credit in the same way the second and third years are, with payments starting to diminish above a family income of $79,000 and cutting off entirely when a family earns just over $97,000 a year.
Editorial comment
To assist in meeting the cost of living, an estimated 142,000 families will receive an average $14 a fortnight extra from the changes to Working for Families. Income testing will not apply to Best Start for a family whose child is born before 1 April 2026; the full amount will be paid until the child is one year old. It is intended that the changes are fiscally neutral.
Legislation to implement these changes, which will commence on 1 April 2026, was introduced on Budget day.
Discussion document released
Under Working for Families, a family can receive support payments via regular fortnightly amounts or as a lump sum after year end. Some 85% of families receiving Working for Families elect to have fortnightly payments.
A considerable number of families have received overpayments through the scheme and accordingly are carrying debt.
Statistics showed that under-estimating annual income by families was the principal cause of the debt (a median of $924 for the 2022 tax year). Because the debt is administered by Inland Revenue, non-payment by due date can result in penalties and interest being added.
Inaccurate assessments or a change in family circumstances mean underpayments to eligible families are also an issue.
On Budget day, the government released a discussion document, “Empowering families: Increasing certainty and preventing debt in the Working for Families scheme”. The document contains proposals for more accurate Working for Families payments using past income over shorter periods. The measure arises because of concern over the number of families incurring debt.
The Government considers that a quarterly period of income assessment for a family would give a balance for purposes of administration and certainty. Other proposals are for entitlement to be measured using a recipient’s previous year’s income or their more recent past income.
The discussion document also considers:
a simpler definition of “family scheme income” for Working for Families purposes, and
consequences for families ceasing to be New Zealand residents.
Public submissions are invited and must be made to Inland Revenue by 3 July 2025. After considering these, the Government envisages a second discussion document will be issued with more detailed design decisions. Further public comment will be sought.
Community housing assistance
Ministerial statement
New funding of $128 million over four years will deliver at least 550 more social homes in Auckland in the 2025/26 year. That’s on top of the 1,500 new social homes funded through Budget 2024, to be delivered from 1 July 2025.
The Government is also establishing Crown lending facilities of up to a total of $150 million for the Community Housing Funding Agency, to help lower the cost of borrowing for community housing providers.
Editorial comment
The underlying goal of these initiatives is better targeted housing for those who need it.
Ministerial statement
The new Flexible Fund is a key part of a new housing investment approach that will better target new and existing government investment to focus on particular needs in particular regions and be more effective at delivering the right types of houses. It will give us a much more granular understanding of the types of housing required – and who is best placed to deliver them.
Editorial comment
There will be $41 million operating funding over 4 years and $250 million capital funding over the next 10 years for additional houses from 1 July 2027. The objective is to provide up to 650–900 social homes and affordable rentals.
The Flexible Fund, which is contestable, replaces a number of existing housing funds such as the Affordable Housing Fund and the Progressive Home Ownership Fund. These and other such funds, as a group, have proved to be unwieldy because of differing funding limitations.
More work is to come in 2025 on the scope of the Flexible Fund and the design of affordable rentals.
Food banks get another year
Ministerial statement
The Government will back community-based food banks for a further year as New Zealand recovers from a cost-of-living crisis, Minister for Social Development and Employment Louise Upston says.
The $15 million in support announced today will be managed by the Ministry of Social Development (MSD), the New Zealand Food Network and partner agencies – meaning help for people who continue to need it.
Editorial comment
The Government recognises that food security is important for health, educational and employment reasons. Regional food hubs and community food providers will be supported for another year because of slower than expected economic recovery.
Funding under this initiative includes an amount to enable the Ministry of Social Development to study the operation of the food support programme so decisions can be made about its future.
Economic and fiscal update
The Budget papers include a Fiscal Strategy Report 2025 which sets out fiscal intentions and objectives, revenue strategy and asset and expenditure management.
The background is that the Government had a structural deficit of 1.1% of GDP over the period 2019 to 2024. This has come about because core Crown expenses exceeded Crown revenue to such an extent that the deficit will not even resolve itself as economic activity picks up. It becomes necessary to put in place fiscal consolidation to put public finances on a sustainable footing.
The approach adopted by the Government is to achieve fiscal consolidation on a medium-term basis rather than as a more severe short-term consolidation. The medium-term approach involves reducing core Crown expenses to 30% of GDP over time and gradually reducing net core Crown debt to 40% of GDP. These objectives entail work controlling expenses and raising revenue based on an active tax policy work programme to ensure that the tax system remains effective.
On the expense side it is noted that core Crown expenses are expected to increase primarily because of the indexation, and growth in recipients, of benefits and NZ Superannuation along with higher finance costs. The NZ Superannuation expenses, for example, are expected to increase from $23.2 billion in 2025/26 to $29 billion in 2028/29. Nonetheless core Crown expenses in total are expected to decline to reach 30.9% of GDP by 2028/29. This is expected to contribute to a decline in the structural deficit so that it will return to a modest surplus of $200 million by the end of 2028/29. At that point, the structural deficit is forecast to close.
On the revenue side, the intention is to continue to rely on personal income tax, company tax and the broad-based GST to raise the bulk of Crown revenue. There is no intention to seek major additional sources of revenue. This means that the primary lever for reduction of the deficit is spending restraint.
The Budget papers note that some 60% of Crown spending is in the areas of social security and welfare, health and education. Each of these areas is influenced by demographic changes. Although a spike in the growth of core Crown expenses is expected for 2025/26 that should be followed by more moderate growth from 2026/27 onwards. The anticipated trajectory is that core Crown expenses should decline to 30.9% of GDP by 2028/29.
The economic outlook is a positive one. A sharp contraction occurred in 2024 because of the effect of the high interest rates previously put in place to return inflation to target. Economic recovery is considered to be underway due to a growth in export earnings supported by high commodity prices and the strength in tourism numbers. The lowering of interest rates by 200 basis points since August 2024 appears to be taking time to filter through to the domestic economy.
The Budget papers acknowledge that there is considerable uncertainty to the international outlook with its flow-on effects for the New Zealand economy. Trade protectionism through tariffs lower consumer and business confidence and will likely increase global inflation. For New Zealand, this may lead to lower growth in trading with other countries such as the US and China.
Although the impact of tariffs on the economic outlook is difficult to predict with any certainty, some forecasts are made. They are based on the assumption of continuation of the broad-based 10% tariff on New Zealand exports into the US. Some favourable trends are forecast.
It is anticipated that the New Zealand dollar will gradually strengthen. The NZD Trade Weighted Index is forecast to increase from 67.8 as at the end of the March 2025 quarter to 69.5 by the end of 2028/29.
Another forecast is that the yield on New Zealand 10-year government bonds will remain steady at 4.3%. This would be helpful through not negatively impacting the Government’s debt financing costs and, more broadly, fixed-term mortgage rates.
Another favourable factor is the projection of future oil prices. Following the US announcements on 3 February 2025 of its new tariff policy, oil prices have dropped to US$61 per barrel. This is expected to increase modestly to US$72 per barrel by the end of 2028.
The overall assessment of the indirect impact of tariffs was to the effect that for New Zealand it will result in weaker export prices and volumes for goods, domestic business investment and business profits. In terms of the impact on GDP the forecast is that tariffs will reduce real GDP growth by 0.2% through to the end of 2027 and lower terms of trade by 0.5% over the same period. No direct impact on import prices is expected.
The absence of no impact on import prices is based on the notion that the indirect impact of higher global inflation is broadly offset by lower world output. It is the view of Treasury that the decades long trend of falling prices for imported goods will slow as a result of the retreat from globalisation, implying that the long upward trend on New Zealand’s terms of trade will level out. Lower nontradeable inflation pressures should see interest rates become 15 basis points lower than would otherwise be the case.
The forecasts add the expectation that there should only be a modest impact on the direct effect of the US tariffs. In the year to March 2025 total exports to the US were $9.3 billion, representing 13% of goods exported. Notable exports included beef, wine and casein.