20 May 2011

Budget sees KiwiSaver cuts, part privatisation plan

6:00 am on 20 May 2011

The Government's Budget for 2011 contains cost-saving cuts to three significant government schemes, including KiwiSaver, and a plan for the partial privatisation of state energy assets.

Government contributions to KiwiSaver have been halved and employer contributions to the voluntary workplace savings scheme will no longer be tax-free.


From July 2012, the Government will put in 50c for every dollar saved to a new maximum of $521 a year, down from its current contribution of $1 for each dollar saved.

From April 2012, employer contributions will be taxed at the employee's marginal tax rate, which means less money going into the employee's scheme and more tax revenue for the Government.

In turn, employers and employees will have to contribute more each year. Their contributions rise from 2% to 3% from April 2013, and will apply to existing and new members.

Working for Families

Eligibility criteria and payments levels for Working for Families have also been adjusted.

Under the changes, some lower income families will receive more, and those on higher incomes could get less.

The Government estimates about 7000 families will lose the tax credit altogether, and a number will have their entitlements reduced.

Families with children aged 16 and 17, with no younger children, will be most likely to have their tax credit reduced.

Under scenarios provided by the Government, a family earning $40,000 a year, with three children aged under 17, will get an increase of $4.12 each week.

A family of four on a combined income of $61,000 will stay the same.

A family on $125,000 a year with four children under 17 would have a reduction of $12.66 each week.

Student loans criteria tightened

Eligibility for interest free student loans has been tightened, meaning those over the age of 55 won't be able to borrow for living costs. That will take effect from January 2013.

Those who have more than $500 overdue on their loan payments will have their lending restricted, and part-time, full year students will no longer be able to borrow for course-related costs.

Partial privatisation plans

The Government has laid out its plan to partially privatise four state owned enterprises (SOEs) and reduce its majority shareholding in Air New Zealand during the next three to five years.

The SOEs are Mighty River Power, Meridian, Genesis and Solid Energy.

The Treasury predicts the sales could earn between $5 billion and $7 billion.

The National Party will campaign on its policy for partial asset sales at the upcoming election and says it won't proceed without a mandate.

There are five tests for any sales, including retaining majority control and New Zealand investors being at the front of the queue for any investments.

Public sector savings

The Government is also demanding savings of $980 million from the public sector over the next three years.

That will be achieved by requiring state service agencies to fund their own contributions to superannuation schemes, including KiwiSaver, which will save the Government $650 million.

Of the savings, $330 million will have to found through increased efficiencies in so-called back office operations.

The Government is setting aside $5.5 billion for the rebuilding of Christchurch, over six years.

A four-year Earthquake Kiwi Bond has been created to help raise capital for Christchurch; it will have an initial interest rate of 4% and is available to New Zealand residents from Thursday.

Health, education

In health, dementia care services receive about an extra $10 million a year, and $18 million will be spent over four years on 40 extra medical places.

The Government has confirmed its commitments to provide extra funding for wider access to medicine, elective surgery and District Health Boards for GP subsidies.

In education, overall spending will increase by $100 million next year.

Operations grants for schools increase by nearly 3%, and in early childhood the Government has rolled back its commitment to remove the six hour daily limit for 20 hour subsidies, saving it $16.5 million a year.

Overall tertiary education spending will fall, as cuts to industry training and adult community education take effect.

Infrastructure spending includes an extra $942 million for ultra-fast broadband.

Economic forecasts

In the wider economy, the Government now expects to return to surplus in the 2014/ 2015 financial year, a year earlier than forecast.

It says that, rather than increasing new spending, this budget will produce savings of about $1.2 billion over five years.

The Treasury estimates that economic growth was about 1.5% lower this year than it would have been without the Christchurch earthquake.

It estimates growth will be 1% in 2011, increasing slightly to 1.8% in 2012, and up to 4% in 2013.

Inflation is forecast to be 4.5% this financial year, 3.1% next year, and 2.4% in 2013.

Unemployment is expected to peak at 6.8% in 2011, 5.7% in 2012, and 4.8% the year after.