Kiwisaver cuts to fund Nats’ tax cuts?

Written By: - Date published: 4:54 pm, August 5th, 2008 - 16 comments
Categories: national, slippery, tax - Tags: ,

So, the rumour is that Kiwisaver will be slashed to fund National’s tax cut policy. Currently, the Government spends up to the following on each Kiwisaver member:

– $1000 on sign-up
– Up to $1040 a year in matching contributions
– Up to $1040 a year in tax credit to employers
– 30% tax deduction for any employer contribution above $20 a week (which applies to virtually no-one at present)
– $40 a year to cover fees.

There are 750,000 members of Kiwisaver, after the first year, the Government is spending around $40 a week on each of them. So, could taking that away fund tax cuts?

There are 3 million taxpayers who earned an income last year. If we were to take the $40 a week off each Kiwisaver and divide it equally among the 3 million taxpayers, they’d get a grand total of $10 a week each. That’s against public expectations of at least $20 more a week and promises of “north of $50 for the average worker” from Key. Either employers would be lumped with paying the entirety of the employer contribution or, more likely, the employer contribution would be scrapped. The 750,000 Kiwisavers would be $30 plus a week worse off. Kiwisaver, a highly successful savings programme that is boosting our low savings rate, injecting money into our capital markets, and attracting attention from policymakers abroad, would be destroyed.

Sounds like a pretty steep price to pay for 667 grams of Mainland Mild a week.

Update: some reckon the Nat plan is that they extend the Government contribution payments to all non-Kiwisaver taxpayers, all 2.25 million of them. $20 a week to 2.25 million people – that’s $2.3 billion a year. Where’s that money coming from? $2.3 billion out of thin air. And those people who in good faith have taken up Kiwisaver get nothing. Nice.

16 comments on “Kiwisaver cuts to fund Nats’ tax cuts? ”

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  1. MacDoctor 1
    5 August 2008 at 5:13 pm

    Actually, the rumour is that English will extend the current Kiwisaver tax break to all taxpayers and make it part of the overall tax package. This is a very different thing from “slashing” Kiwisaver. It means that the 750,000 who have a Kiwisaver account already have part of their National tax cut, it does not mean that English is planning to reduce the Kiwisaver tax break.

  2. Chris S 2
    5 August 2008 at 5:28 pm

    You mean I don’t get a tax cut because I’m on KiwiSaver? That’s unfair!

    Kiwisaver was dreamed up as an incentive to save – take away the incentives and your left with a crappy, restricted, trust fund.

  3. simon 3
    5 August 2008 at 5:32 pm

    Macdoctor, which means National would already be breaking their election promise(s) by NOT giving ALL working NZer a bigger tax cut than Labour.

  4. Daveski 4
    5 August 2008 at 5:34 pm

    SP – I should have the decency to acknowledge a post on another topic 🙂

  5. vto 5
    5 August 2008 at 5:45 pm

    Chris S, too right its unfair.

    I want my one-off $1,000 and my annual $1,040. What a freakin’ jip.

  6. MacDoctor 6
    5 August 2008 at 5:49 pm

    Kiwisaver was dreamed up as an incentive to save – take away the incentives and your left with a crappy, restricted, trust fund.

    So the fact that the employer is matching your contribution dollar for dollor is not an incentive?

    PS you started with a crappy, restricted trust fund – what did you expect to end up with?

  7. Chris S 7
    5 August 2008 at 5:50 pm

    My tongue was firmly planted within cheek.

    That’s not unfair, it’s an incentive from the government to do your own saving instead of relying on the Cullen fund you hotly protest when you retire.

  8. vto 8
    5 August 2008 at 5:54 pm

    It is unfair. Give me my grand and annual grand and forty and I will save it myself as I see fit. What’s the problem with that?

  9. Chris S 9
    5 August 2008 at 5:54 pm

    MacDoctor, if you get the “employer contribution” whether your saving or not, it by definition ceases to become an incentive to save.

    Also, I signed up to a savings plan which drew contributions from myself, my government and my employer on the condition it was used for certain things (retirement, house).

    If you take away the incentives, you leave only the restrictions.

  10. Chris S 10
    5 August 2008 at 5:56 pm

    Because, as I alluded to in my other comment, the government is investing in you not to have to rely on it in the future.

    For the scheme to work, it needs to be controlled.

    EDIT: Not to mention you are allowed some freedom when it comes to choosing the fund you wish to invest in, and the risk of your investment. Do you not see any of these funds as fit?

  11. vto 11
    5 August 2008 at 6:01 pm

    You mean Chris S because you dont trust your fellow manwoman to look after himherself. It’s ok, I know the left doesn’t like control by others. Its abundantly clear. Hence the oh-so-apt nanny state label.

    edit – yes one or two maybe are good. not many more tho. but thats not the point.

  12. Chris S 12
    5 August 2008 at 6:08 pm

    Yep, that’s exactly right vto – got it in one. I don’t trust righties with free money because they’ll just swallow it up and ask for more.

    Why do you make it so hard to have a discussion without trotting out this crap?

    As an obvious follower of the right-wing ideology, you must understand that you can’t simply throw everything in the middle and let everyone sort itself out?

    If you want a specific outcome, you need to control the variables.

    If you want to decrease dependency on state super in the future, people need to be able to live on their own savings during retirement.

    If you want people to save, they need an incentive towards not spending.

    The bigger the incentive, the more people will select it.

  13. Steve Pierson 13
    5 August 2008 at 7:39 pm

    So, Macdoctor says the Nat plan is that they extend the Government contribution payments to all non-Kiwisaver taxpayers, all $2.25 million of them. $20 a week to 2.25 million people – that’s $2.3 billion a year… and where’s that money coming from? $2.25 billion out of thin air. And those people who in ghood faith have taken up Kiwisaver get nothing. Nice.

  14. Steven 14
    5 August 2008 at 8:14 pm

    I’ve said this before here that Kiwisaver needs to be tied in with student loan repayments, and it’s not a political issue, any party should adopt it. IE if you have a student loan to pay off as well then instead of paying 4 % all to kiwisaver there needs to be an attachment to the scheme whereby it’s optional (that is you can choose) to divert half the 4 % to paying off the student loan and the other half to kiwisaver. Then once your student loan is paid off or brought down under control you can then choose to go back up to the 4 % kiwisaver. This would win votes among those who are now aged about 27 + who got shafted by compounding interest in the 1990s and still have fair sized loans to pay off, a large chunk of which is compounding interest not actual principle. Personally I’m caught between not being able to afford to kiwisave (due to existing high taxes and student loan repayments = too modest net pay)and being obliged to join as it’s a no-brainer from next April.

  15. Steve Pierson 15
    5 August 2008 at 8:27 pm

    Steven. Interesting idea.

    Your age group realyl got screwed over. I was lucky that I started uni the year Labour ended interest while studying and let uni the year that interest later student was eliminated… but I know many people a few years older than me who still have massive loans.

    At first glance I like your idea. Another option could be to forgive some or all interest debt or NZ resident people.

  16. Steven 16
    6 August 2008 at 7:04 am

    Yes, I have sent detailed emails to the education arms of both major parties recently about my idea, but no response.

    Obviously the best idea would be to wipe all compound interest on past loans. My current loan balance would drop from the mid 20s into the teens instantly and I would vote for the party that proposed that. At one stage my loan balance was up there at about $43,000 and I think I only borrowed about $31,000, with interest kicking in from day one in 1995 and then a year and a bit overseas etc. But that idea wouldn’t happen would it? It would be seen as too much as a bribe.

    Instead, a practical idea that would work and go down well is to split the 4 % kiwisaver in half and divert half of it to paying off your student loan if you so wish to.

    At any rate, one way to lift productivity overnight and also have some good people return to New Zealand is to do something about the 1990s university generation who have this noose over their heads.

    People in their 30s are clipping the ticket twice at the moment, with the current generation of students going through free and then with WFF which is perceived as middle class welfare for people who chose to have children, that they see that they are paying for. Then you see on the news that about the GOVT preparing to ‘bribe’ today’s current students with allowances for all.

    What about us?

    Is it any wonder why I’m considering moving to Brisbane to dig holes for $25 an hour. And I’m far, far from alone. There’s a new wave of thousands of us on the cusp of throwing the towel in this country and the pollies can’t grasp this situation.