Written By: - Date published: 7:56 am, May 29th, 2008 - 57 comments
Categories: articles, election 2008, election funding, john key, slippery, workers' rights -
Tags: cheese, kiwisaver
I noticed an interesting comment from Ferdinand in our Kiwisaver thread yesterday:
I signed up to Kiwisaver based on the 4% employer contribution being rolled out. If National cap that at 1% then I’m out of pocket by about $75,000 in contributions alone.
That got me thinking about that meaningless phrase John Key used to describe National’s position on Kiwisaver: “pretty similar”. WTF?
So I had a think about it. Key could mean “pretty similar” to the current situation of a 1% empoyer contribution or perhaps “pretty similar” to the plan to put it up to 2% next year.
Now if you are a worker on an average wage of $45,000 with 40 years of working life ahead of you then the first scenario means you lose about $140,000 in contributions and interest. If it’s the second you lose about $90,000.
That’s a lot of money so I’m not surprised Ferdinand is concerned about what Key means and I’m sure the other 629,999 Kiwis signed up for this scheme will be too.
With so much at risk you would hope National would be sending a clear message about where they stand but I guess that’s just not something they do.
Think about it: 630,000 people with up to $140,000 to lose each. That’s a lot of cheese.
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Chris S. Kiwisaver is handled by IRD, the contributions go to the IRD from the employer just at PAYE payments do. Beyond intial setup, there’s no extra work involved in that regard. And the maths of claiming the credit and deductibility are pretty simple.
Lets not flog ourselves too much with the belief that Kiwis are poor savers. This little chart here shows just how much Resident Withholding Tax has been increasing year-on-year just on interest earned, it doesn’t include dividends etc. It roughly indicates we have 80 odd billion dollars in savings growing at 15% per annum.
Resident Withholding Tax
Chris:
Larger organisations have payroll software which cover kiwisaver and automate the process. Smaller organisation like the one I work for (4 employees on kiwisaver) it has added 5 minutes more work to monthly PAYE admin.
I would like to see JK keep kiwisaver as is, and allow employers to deduct the contributions they make. Govt will just get a delayed tax payment via GST when I retire..:)
Rob
If I was grumbling, it would be about the program, not the bureaucrats needed to run it. No point criticising the latter when it’s a function of the former.
The person who will be grumbling is the poor minimum wage slave who can’t afford to live on 100% of his pay let along 96% of it, but sees part of his taxes going to my relative for weekend drinkies money.
“The person who will be grumbling is the poor minimum wage slave who can’t afford to live on 100% of his pay let along 96% of it,”
I would imagine they would be grumbling even more if the employer “contribution” was coming out of their wages too.
Sean14: you make a good point. Kiwisaver could be seen as more middle class welfare, those who can afford to save anyway taking money from those who can’t.
IrishBill: It will be. I can see large employers negotiating down wage increases ( not wages as you suggested I was saying above) for lowly paid workers so they can pay the Kiwisaver contributions for managers and executives. The delicious law of unintended consequences that seems to be tripping up Labour a lot this year
Bryan – won’t the market make everything alright then, the workers will just go elsewhere, and the managers and executives will go broke?
No?
That’s right – the market sucks.
Sorry, OT, but felt like tossing that in there.
andy. Employers can deduct the contributions they make. Even better, the first $20 they contribute is completely free.
I can see large employers negotiating down wage increases ( not wages as you suggested I was saying above) for lowly paid workers so they can pay the Kiwisaver contributions for managers and executives. The delicious law of unintended consequences that seems to be tripping up Labour a lot this year
I don’t agree with your premise but I find it telling that you’d find such an outcome ‘delicious’.
Bryan: Lets not flog ourselves too much with the belief that Kiwis are poor savers. This little chart here shows
I’m not sure what your chart shows, but there is a problem with declining household savings in NZ:
http://www.scoop.co.nz/stories/BU0609/S00447.htm
http://www.rbnz.govt.nz/news/2006/2823160.html
Kiwisaver could be seen as more middle class welfare, those who can afford to save anyway taking money from those who can’t.
Why not look on it as incentive for people to work harder and increase their earnings so that they can afford to save? That’s the story when arguing for tax cuts for the rich – the ultimate example of middle class welfare.
“IrishBill: It will be. I can see large employers negotiating down wage increases ( not wages as you suggested I was saying above) for lowly paid workers so they can pay the Kiwisaver contributions for managers and executives.”
Bryan. That’s not legal. Is your argument that some people will break the law so we should should change it to accommodate them? Or are you yet again offering opinion on a matter you know nothing about?
Matthew: Look at the numbers, you are absolutely right, workers are voting with their feet.
Tane: I know the Prime Minister considers the NZ Herald ‘an organ of the right’ but most of the stories in the NZH about politicians being tripped up by the EFA do seem to involve Labour politicians.
steve
That is the 1% contribution, what about next year (hypothetically) when it goes up to 2%, and the year after to 3% and after that 4%.
I think the employer contribution loses deductability after the second year (2%) so it becomes a direct cost to employer (??), this will inevitably be reflected in lower wage rises. this is why it would be a gift to all NZers if the employer contribution was deductable for full amount.
I think employers would be supportive if they didn’t have to shoulder the extra cost without an offset mechanism, most I come into contact with think the Kiwisaver idea is great, but they hate the extra cost, surprise, surprise!!
For a large company this could be the difference between hiring an extra employee or not ?
There is a problem with the short sighted nature of NZ business, as the cost of raising capital should fall as Kiwisaver gains momentum, and there is a mass of funds looking for an investment home. Raising capital in NZ is a real problem for business, to start a small business you need a house to borrow against as small loans for businesses have very high hurdles and interest rates (twice the mortgage rate). So you have to be a successful employee before you can start a business, real chicken and egg problems for a nation of small businesses.
But Bryan, they have a 9% equivalent contribution in Australia, so that’s a thoroughly pointless…point WRT compulsion is savings schemes.
Perhaps you’d do best not to take single points in isolation!
rOb: thanks for the links. The RBNZ PDF shows savings as a percentage of GDP. Savings are increasing but our indebtedness to foreign lenders has been increasing much faster. As the cliche goes “We have been borrowing cheap money from Japanese housewives so we can buy each others houses”.
Come to think of it, that minimum waage slave would be rightly upset about having to subsidise rich farmers to the tune of $700 million too.
What $700 million exactly, sean14?
Anyone who hates rugby will be unhappy about the world cup costs right?
There are a lot of things the Government does that do not directly benefit me, and I do not begrudge them one bit; in a democracy it’s a thoroughly useless attitude to point to every cent of spending that’s not for your benefit and decry it.
The Government is for the people of NZ, not just for each individual – looking at it thus is a surefire way to feel bitter and disenfranchised for no gain!
Actually, I see far more compulsion coming out of the right than I do from any socialist of any stripe.
No, the reason why we ended up with superannuation is because the National government under Rob Muldoon abolished the compulsory savings scheme introduced by the previous Labour government.
Who has that $80b though? Because I can assure you, it isn’t the 70%+ that have incomes below the average wage. You know, the people Kiwisaver was designed to help.
Thanks for the reply SP. Though it appears there is still a bit more to this, going on the comments.
National government under Rob Muldoon abolished the compulsory savings scheme introduced by the previous Labour government.
Yep and that’s the one that would be providing $400bn of onshore investment capital by now.
Matthew – The Fast Forward Fund.