National reforms Kiwisaver – again

Written By: - Date published: 9:31 am, May 12th, 2011 - 25 comments
Categories: bill english, david cunliffe, kiwisaver - Tags:

John Key has announced National’s third reform of Kiwisaver in 3 years, saying the government’s contribution will be cut and made up with higher minimum contributions from members and their employers. It’s an embarrassing flip-flop from the government that cut default contribution rates and shows no plan for the future.

As Phil Goff pointed out yesterday, National is keen to cut government spending out of a fair savings proramme like Kiwisaver but won’t even think of reversing its tax cuts for the rich.

Hon Phil Goff: If he wants to reduce the deficit, why is he cutting tax credits to low and middle
income earners in KiwiSaver but not cutting back any of the windfall tax gains he gave to the
highest income earners at a cost of $2.5 billion each year?

They plan to make up the lost government contributions by making our contributions higher, reversing their own decision to cut those contribution rates, as David Cunliffe pointed out.

Hon David Cunliffe: Why did his Government cut the KiwiSaver default contribution rate for members and employers in 2008, given that the Prime Minister’s big announcement today is that he will seek to reverse his own change?
Hon BILL ENGLISH: The member may recall that KiwiSaver was at the time costing the Government somewhere around $1.5 billion. We made a number of changes to it that made it affordable, particularly in the light of the significant global recession affecting New Zealand, and as part of the tax package we brought in in December 2008.
Hon David Cunliffe: If KiwiSaver needs to be durable and sustainable, as he used to say, how is his Government promoting that durability by flip-flopping on member and employer contributions and breaking his party’s promise not to cut member tax credits, when the average Kiwi now thinks they cannot rely on this scheme under this Government?
Hon BILL ENGLISH: The Government is committed to the durability and affordability of KiwiSaver and we have managed to maintain the scheme through the most difficult economic times the country has had in a long time. We are simply not willing to keep borrowing to put money into people’s savings accounts and calling it savings.

Uh huh. Of course, by cutting the default member and employer contribution rates when he did, English made Kiwisavers miss out on a once-in-a-generation rally in asset prices, following their plunge in 2008/09.

It always stuns me that English seemed to genuinely think that the recession was a reason to stop investing in our future. Doesn’t he realise that, when you’re buying now to sell decades in the future, the best time to be buying is during a recession when asset prices are depressed? If he thought asset prices would never he recover he must have thought the entire economic system was going to collapse – I would have liked to hear him say that. Instead, he cut Kiwisaver and the Cullen Fund, costing us a fortune:

Hon David Cunliffe: Can the Minister confirm that the New Zealand Superannuation Fund has made a return of 32 percent since he cancelled the Government’s contribution to it, and that if those contributions had continued, based on that rate of return, Crown debt would have been reduced by approximately $375 million compared with what it is today?
Hon BILL ENGLISH: The member needs to remember the context here. The New Zealand Superannuation Fund lost billions of dollars because of the change in global markets. It has clawed back a fair bit of that, and one would expect that a fund of this size would over time return to its normal return. In the end, the Government took the view that borrowing is not saving.

I’m guessing English would never take a mortgage to buy a house at the bottom of the housing cycle, then.

Actually, of course he wouldn’t. He just gets the taxpayer to pay. The guy’s been on the public teat for so long he doesn’t have a clue about making investment choices.


– Bright Red

25 comments on “National reforms Kiwisaver – again”

  1. Carol 1

    Having just listened to the discussion on Nine-to-Noon about the possible changes the government is going to make to Kiwisaver… it seems to me that Key/National is being quite clever in making subtle changes, the impacts of which will be complex. Basically, it may be hard to explain clearly & succinctly to the general population exactly how National is disadvantaging potential savers with the changes.

  2. This proposed reform is showing how much National don’t have a plan. They’re likely to increase employer & employee contributions to 4%… ie back to what it was when they started.

    It’s good if they can admit that they were wrong; it’s bad that they don’t have a clue for the economy.

    • Lanthanide 2.1

      They’ll ratchet it up over time, as per Labour’s original scale of 1, 2, 3, 4% for employer contributions. Labour also had a $20 rebate that was to go to the employer to help defray the costs. National cut the rebate and capped the employer rate at 2% because they were elected just at the right time to do that.
      One thing I definitely do agree with was the option of the 2% rate – which I am now using, and I probably wouldn’t be using kiwisaver if it was 4% because I couldn’t have afforded that until very recently.
      There’s no way they’ll remove the 2% rate.

      • Carol 2.1.1

        I think what was suggested on nine-to-Noon was that they wouldn’t remove the 2% rate, but would remove the financial incentives for it, giving more financial input from employers or government from higher rates. But, of course, that would disadantage people on low incomes.

    • Daveo 2.2

      If they ramp it up to 4% and don’t close the loophole Irish has highlighted it will be a bad thing.

  3. Carol 3

    Vernon Small spins the downsides & unfair elements of Nat’s possible changes to Kiwisaver as “heroic”. Small frames it as Key spending some of his smile & wave capital, while still retaining enough of it to maintain popular support – very cynical!

    Along the way he does point out some of the unfair aspects:

    It is hard to justify borrowing to give cash to people to save – more so with KiwiSaver than with the Cullen fund, which is achieving a very good return.

    But accepting that argument, Mr Key and his colleagues might like to explain why we are borrowing to subsidise politicians’ superannuation so generously.

    It is also open to attack for being inherently unfair on lower-paid workers – an argument Labour may turn to if it ever gets away from its risk-aversion and promises to reverse the change.

    If the Government opts for a straight percentage increase by savers and employers to make up the shortfall – say, to 2.5 per cent – that will mean employers and employees on higher incomes will put in more under compulsion. But the result for the lower paid is that they will get less from their employer than they lose from the government.

    Slicing a $10 tax credit off everyone is not far different from a flat – and therefore regressive – tax increase.

    Small also says that Key will start to drip-feed the positive sides of the budget over the next few days, having got the negative stuff in first. This includes Nats making an optimistic prediction of return to surplus earlier than 2015.

    What a cynical government that keeps smiling while it rips off struggling kiwis.

    • Pascal's bookie 3.1

      I think you are being a tad unfair on Small there Carol. I doubt the ninth floor will be all that happy with his analysis.

      • Carol 3.1.1

        I guess the 9th floor won’t be totally happy with it, PB, but while Small does show up the unfairness, it IS framed as “heroic” and spending some political captial, as a way of softening the critque. Which is why I highlighted the critical parts. But Small also takes a swipe at Labour along the way too.

        • Pascal's bookie

          The lede -> ‘heroic’

          OPINION: The Government’s move to cut its KiwiSaver subsidy is clever. It might even be necessary. But mostly it is bare-faced cheek.

          Because a cut is a cut is a cut, whether or not the Government compels us as employees and employers to make up the shortfall.

          In a way that makes its plan – details pending next Thursday’s Budget – to cut its $1040-a-year subsidy through the member tax credit doubly outrageous.

          First it proposes to take (what looks like being) $10 a week away from savers.

          Then it insists that if you want to keep the remaining $10 a week, you will have to forgo even more current consumption or not repay your other debt as fast as you otherwise might. (Irony of ironies for a measure aimed at boosting national savings.)

          With the economy struggling to get back on its feet, and with economists wondering when consumers will stop reducing debt and start spending, it is a heroic call to take more stimulus out of the economy.

          I read that ‘heroic’ to be ironic, others may read it different of course. A lot of people wouldn’t have got much more through the article than that, and it pretty much says ‘JK is bullshitting you’.

          • Carol

            Well, I think there’s wriggle room to read it either way. “Bare-faced cheek”, might be seen as a kind of positive by some on the right.

            • Pascal's bookie

              Oh for sure, and clever can be read as ‘smart arsed’ by the punter too. 😉

    • Blighty 3.2

      It’s funny that you can be effectively awarded political capital for having the courage to burn political capital.

      The truh however, is that Key is flip-flopping and tinkering. It’ll hurt people a bit and make no real difference to national savings.

  4. joe bloggs 4


    Hon Phil Goff: If he wants to reduce the deficit, why is he cutting tax credits to low and middle
    income earners in KiwiSaver but not cutting back any of the windfall tax gains he gave to the
    highest income earners at a cost of $2.5 billion each year?

    Rt Hon John Key: Because this Government introduced a balanced package of tax cuts, which … are fiscally in surplus; they give the Crown about a billion dollars by 2013-14. The Opposition is welcome to go and campaign on a higher top personal rate and make New Zealand less competitive with other countries.

    • Carol 4.1

      Same old Key spin… “fiscally neutral”? yeah right. And NZ is already so competitive it has increasing “competetiveness” has made things tougher for struggling kiwiws while overseas interests have been been siphoning off our wealth. Also, I think giving tax cuts to the higher paid hasn’t increased NZ’s so-called “competitiveness”, or improved the economy.

      • Lanthanide 4.1.1

        It’s a pity we had the two earthquakes, because without them it would be very easy to shoot down Key’s “aggressive recovery” he promised on the back of the tax cuts. Now with the earthquakes, there’s enough of a smokescreen to hide behind to confuse the issue. Sure, we all know that the tax cuts did squat, but to the average “punter out there in punterland” (to quote Brash) the issue isn’t clearcut enough to be definitive.

        • Pascal's bookie

          I’m surprised that political pros don’t use graphs more in their propaganda. It doesn’t have to look like a statement from a fund manager. All you need is a nice big simple graphic on top of the quote you are disproving.

          Point to where the earthquake was for example, and folks will see how much effect it had on the trend. They might not think of it in those terms, but they can see what way a line slopes.

        • Draco T Bastard

          Jonkey, in the Hardtalk interview, said that Chch would add to the GDP.

    • Colonial Viper 4.2

      this Government introduced a balanced package of tax cuts

      Yes, NACT tax cuts were definitely balanced.

      Balanced towards themselves and their already wealthy mates.

  5. ianmac 5

    Was anyone surprised that the Kiwisaver changes are announced at the same time as the Demerits for drivers idea? Deflection?
    Of course the demerits are some years away but why not give it to the peasants now so that they scrabble over it while more immediate changes float by.

  6. Peter Martin 6

    So Labour is against these ‘changes’ eh.

    Naturally, when National goes to the election with this as policy to be implemented after the election, Labour will be busy opposing and running on a policy of keeping things as they are .

    Or not.

    • Carol 6.1

      Well it’s hard for any opposition party to state what their policy will be, when they haven’t seen the small print saying what the government is going to do. But it looks to me like Labour is far more on the ball in developing a coherent and comprehensive approach to the economy than is National. From David Cunliffe today:

      In short, Kiwisaver must not be undermined, it must be built upon. It is a loved and trusted base to work from. But even as it stands it is not enough at present to lift savings rates as much as we need.

      NZ’s lack of savings is even more acute now because of National’s failure to continue pre-funding the NZ Superannuation Fund, which has risen in value 32% over the last year and earned 8%, well above Crown cost of capital, since inception.

      Labour will carefully consider the Budget and later release our own policy on savings, which will build on the best features of Kiwisaver and lift savings rates to the benefit of all New Zealanders.

      And this is far more of an indication of policy than National was giving at this stage in the last electoral cycle.

      • Peter Martin 6.1.1

        I am aware that there has never been a superannuation scheme that National has liked…or not tried to destroy.
        But this is a pretty clear delineation of both Party’s ideology. Labour set it up…National is tearing it down.
        And we have to wait and see.

        All the mongrel of labradoodle.

      • handle 6.1.2

        “Well it’s hard for any opposition party to state what their policy will be, when they haven’t seen the small print saying what the government is going to do.”

        It is not hard to say what you stand for. Instead we get another piss-weak “we don’t like it but we won’t commit to changing it” from Labour. If only voters found eunuchs attractive.

        • Carol

          Labour has not said they won’t change it. “Commit” is difficult to do at this stage. They don’t know exactly what the government is going to change at the moment, and all opposition parties leave it til nearer the election to announce proposed policies, changes etc:

          Labour finance spokesman David Cunliffe said the move undermined confidence in the scheme, which has more than 1.7 million members.

          He said Labour would release its savings policy later. “That does not mean we will not restore the member tax credit. But we will have to make a judgment after seeing the Budget books.”

          Labour would aim to “build up, broaden and grow KiwiSaver”.

          It depends how and by how much the government guts the scheme as to how Labour can change it, and how quickly.

          • handle

            Again, it’s not hard to say what you stand for – all the time, not just during the few months before the election, or when you have heard what the other guys will do.
            “Labour would aim to “build up, broaden and grow KiwiSaver” is an example – Cunliffe seems to be doing that better than Goff at the moment, but they all need to be. All the time.

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