11 May 2011

KiwiSaver tax credit to be cut

10:19 pm on 11 May 2011

The Prime Minister says the Budget will include cuts to the KiwiSaver tax credit, and employers and workers will be expected to pay more into the scheme.

John Key outlined the changes to the voluntary savings scheme in a speech to a business audience in Wellington on Wednesday.

KiwiSaver was introduced on 1 July 2007 by the previous Labour-led Government.

At present, workers enrolled in the voluntary savings scheme must pay at least 2% of their wages, which employers are required to match.

Mr Key says the tax credit of up to $1040 a year will be reduced, but the $1000 kick-start for new members will remain.

The Prime Minister says the increased worker and employer contributions will be modest. No further details were released, but the changes will only come into effect after the general election on 26 November.

Labour says the National Government's planned changes will hurt low and middle-income earners enrolled in KiwiSaver.

Leader Phil Goff says the announcement will mean the average worker in KiwiSaver pays more to cover the cuts in the Government's contribution.

The Government does have to reduce its deficit, but it should be looking at the people who got large tax cuts, he says.

The Budget will be delivered on 19 May.

Business group cautious

Business New Zealand has reacted cautiously to news that employers will be required to increase their KiwiSaver contributions, saying more details are needed.

Chief executive Phil O'Reilly says employers are generally supportive of the savings scheme, but if the increase in contributions was to happen right now there would be concerns about the cost.

"Like most things, some businesses will find that a struggle to afford if that was to be done today and some would be okay affording it today. Some, in fact, are doing more than that today.

"It's important that we wait to see what the specifics of the announcement are, particularly associated with the timing of the change to see whether or not businesses will find that affordable overall."

Any increase in KiwiSaver contributions will be a factor in employer's mind when it comes to wage negotiations, he says.

KiwiSaver 'still good value'

Financial columnist and author Mary Holm told Checkpoint that KiwiSaver is still good value.

"They're just broadly trying to make people put in more money to get the Government's incentive and under the circumstances, that's probably fair.

"Given that KiwiSaver is funded by all taxpayers, making people who are in the scheme do more for their money is not altogether unfair, really."