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“pretty similar”

Written By: - Date published: 7:56 am, May 29th, 2008 - 57 comments
Categories: articles, election 2008, election funding, john key, slippery, workers' rights - Tags: ,

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.

57 comments on ““pretty similar””

  1. IrishBill: surely employers will just reduce pay increases to compensate ?

  2. IrishBill 2

    Bryan, I’m glad to see you have such a low opinion of employers’ integrity.

  3. alex 3

    Can we get a graph of 1% vs 4% up on this post for an average worker over the span of say 45 years?

    Assuming that JK means by “pretty similar” to what it is now means it will stay at 1% indefinitely.

  4. Stephen 4

    Seriously?

  5. MikeE 5

    How much are the taxpayers and employers out of pocket who have to compulsariliy subsidise KiwiSlaver?

  6. Lew 6

    National’s line if this turns out to be more than speculation will be `we’ll return [some of] the difference to workers in tax cuts, and they can invest it in KiwiSaver or the investment scheme of their choice.’

    The whole `KateGate’ thing could have been neutralised if Key had simply backed his Industrial Relations spokeswoman and said something like this, rather than the failed coverup-retraction.

    L

  7. Stephen 7

    Er my comment was for Bryan

  8. vto 8

    sheesh you fullas have a funny way of looking at things. How on earth can you ‘lose’ something you never had ffs?

    And why on earth you would trust a govt to not alter the rules I do not know – history has proven that to be foolish time and time and time again.

  9. SweeetD 9

    Slow down cowboy and wait for the actual detail. There is still a load of time till the election.

  10. IishBill: so if Labour has such a high level of confidence in employers integrity why do they have to compel them to contribute to Kiwisaver ? I think National Party policy should be to remove the compulsion and let employers/employees act like grownups and negotiate their own arrangements. Yes, yes I know John Key doesn’t want to ‘scare the horses’.

  11. Tane 11

    sheesh you fullas have a funny way of looking at things. How on earth can you ‘lose’ something you never had ffs?

    The same way National and its supporters moan about the cancellation of the “chewing gum” tax cuts?

  12. Tane 12

    Slow down cowboy and wait for the actual detail. There is still a load of time till the election.

    Kiwis are trying to plan for their retirements. This is not just a game that National’s playing here.

  13. erikter 13

    The word compulsion is revered by the socialists.

    Reduce taxes and let the salary earners plan for their retirement. If some people are foolish/stupid enough not to put money aside for later years, it’s their problem, not mine.

    Of course, this entails the exercise of individual responsibility, a concept despised by the Left, who would prefer the state taking care of every aspect of the workers’ lives.

  14. Stephen 14

    On the face of it, I would favour reducing the need for employer compulsion too – let businesses offer additional Kiwisaver payments as a way of attracting workers, no? This might fluctuate according to the economic climate though…

  15. SweeetD 15

    No, its not a game. So, instead of making wild fantasy maybe’s, why don’t you wait until the actual detail has been released. Who knows, National might not win the election.

  16. Tane 16

    erikter, the word you’re looking for isn’t ‘foolish’ or ‘stupid’, it’s ‘poor’.

    Stephen, the market has proven to be an abject failure in this regard. That’s why we needed Kiwisaver in the first place.

  17. infused 17

    Kiwisaver is going to hit businesses hard. I am self employed and am not planning to employee anyone at the moment. I look after businesses though who do have employees and are dreading this.

    Why can people not save for themselves? Why does the govt always have to step in and impose costs on everyone else? It’s hard enough as it is.

    I’m not in Kiwisaver.

    EDIT: I like what someone else said, why not let the businesses set the rate? Then, one employer would have a good benefit over another employer.

  18. Tane 18

    infused, why not move to Australia and pay 9% instead?

    Face it, as tough as it is to run a business under any conditions, you’ve got some of the lowest labour costs in the developed world, a staunchly neoliberal employment regime and live in the second easiest country in the world in which to do business.

    EDIT: I like what someone else said, why not let the businesses set the rate? Then, one employer would have a good benefit over another employer.

    Because they’d mostly set them at zero, and the only people who will benefit are the minority of mobile, highly skilled and largely highly paid workers who have individual bargaining power.

  19. vto 19

    Tane said “That’s why we needed Kiwisaver in the first place.”

    I thought that was why we needed superann in the first place Tane. Or is this another first place? And what will be the next first place – an investment property for each worker perhaps? Apologies for the flippancy but it seems to be the appropriate response…

  20. Tane 20

    vto, you’re incoherent.

  21. Stephen 21

    A ‘failure’ in what sense? I know plenty of companies offered superannuation schemes before hand, but I admittedly have no idea of the scope or level of generosity. A lot of companies also *didn’t*, which I can see as being something of a problem. Now employers have an additional cost, which can be offset by the $20 a week rebate the government will give to employers, although this will be worthy bugger all to employers with high wage earners. ALTHOUGH, if you have high wage earners, you’re probably a ‘company’, which means you’re eligible for the company tax reductions, unlike non-companies (sole proprietorships etc..)

    Slightly convoluted would be a good captcha

  22. Bryan. it’s illegal to lower wages to cover Kiwisaver contributions.

    According to economic theory in the long run, yes, the kiwisaver contributions from employers would be partially offest by smaller wage growth but, on the other hand, employer contributions will be partially offset by higher wages -so they even out.

    Incidentally, 630,000 poeple losing $140,000 would be 6.3 billion 1 kg blocks of Mainland Mild from Woolworths, or $88 billion.

  23. IrishBill 23

    Bryan, I see in the Dom that employers are already lobbying National to create policy that would allow them to take KS contributions out of wages. I never claimed labour has a believe in employers’ integrity as I don’t know if they do or not. I know I don’t and today’s article hasn’t made me reconsider that opinion.

  24. Stephen 24

    Maybe i was slightly incoherent too…on balance, it looks like a slight negative for employers, though I suppose they can hold back wage increases .

  25. vto 25

    you are

    ha ha. Incoherency was my first point about this thread.

    captcha: of Cinderella, how appropriate

  26. Patrick 26

    As far as I recall, the whole reason KiwiSaver was set up was because very few New Zealanders were saving for their retirement. While it’s not compulsory to join, the incentives are strong enough that we already have 630,000 people in New Zealand saving with KiwiSaver schemes. This is fantastic.

    My younger brother has recently left high school and is working only a bit above the minimum wage, but he is still able to afford to contribute, and for the first time in his life is seriously saving money. This is a great thing, and I really doubt he would have joined without the incentives provided in KiwiSaver Mark II.

    Given that employers are also getting significant tax breaks to help cover the cost of KiwiSaver contributions, I’d say that the whole picture of it being a drain on employers isn’t so clear. If anyone has the numbers (and graphing skills!) around this, I’d really appreciate it.

    Sure, we’re not getting the 9% that Australian employers are forced to contribute, but I think what we’ve got is a great start.

  27. sean14 27

    IB

    Firstly, I agree that National should send a clear message on their KiwiSaver policy. Voters should be able to make an informed choice.

    Think about it: 630,000 people with up tp $140,000 to lose each. That’s a lot of cheese.

    That statement is technically correct, but it’s highly misleading. Many KiwiSavers have nothing to lose if employer contributions are changed: Under-65 retirees for one, and public servants who are ineligible for the employer contributions as they are already receiving them in another scheme. I’ll bet a large proportion of KiwiSavers fall into those two categories.

    What Cullen should really answer, or you can have a go if you like, is this: Why should a relative of mine, who has retired well short of 60 because she planned superbly for it, be able to join KiwiSaver with it’s $1000 kick-start and $20 a week from the government (provided she puts in $20 a week as well)? She is kicking back, enjoying her retirement, and being partially subsidised by the working poor to do so. How is that acceptable?

  28. Phil 28

    “… the market has proven to be an abject failure in this regard. That’s why we needed Kiwisaver in the first place.”

    Wages rising in tight labour markets, like we have right now, is a market working exactly as it should.

    If you want to play jam-jar economics with peoples incomes and insist on Kiwisaver, that’s your prerogative. Me, I’d rather make it easier for employers to offer a wider range of incentives to staff – cark parking, medical insurance, low interest loans, super, vehicles for private use, so on and so forth.

  29. Tane 29

    though I suppose they can hold back wage increases .

    How’s that supposed to be a selling point in the market place like you’re suggesting then?

  30. Stephen 30

    Forgive my stream of consciousness method of posting, it gets me into trouble sometimes.

    Wasn’t…one of the Ministers talking about trying get around employers holding back wage increases through legislation somehow?

  31. Tane 31

    Trevor Mallard a month or so back. Several high profile employers had told staff they’d be taking Kiwisaver out of their wages. The cheek of it, especially when the government is subsidising employer contributions.

  32. Stephen 32

    But if they’re only getting up to $20 a week in subsidies, that is really NOT going to cut it for a lot of people.

    [and any contributions above $20 a week are tax deductible. An average fulltime income of $46,000 sees $1840 a year of employer contributions at 4%, $1040 of that is covered by the $20 a week, $240 by tax deductibility. The employer is being required to contribute just $560 net a year for an employee on that average fulltime wage. Hardly an overwhelming burden. SP]

  33. Vanilla Eis 33

    Stephen: as previously stated, at the current employer contribution the subsidy covers an employee making around $59k per annum. How many people isn’t it cutting it for? We’ve already seen that the majority of workers in the country make far less than that.

  34. r0b 34

    sean: She is kicking back, enjoying her retirement, and being partially subsidised by the working poor to do so. How is that acceptable?

    There are two ways to design and implement government programmes. You can make them simple and clear, open to everyone, and you live with a certain percentage of anomalies. Or you can make them complex and regulated, and create a big bureaucracy, and live with a smaller percentage of anomalies. I guess it’s an open question as to which is cheaper in the long run, but I and I think many others prefer the first approach.

    Or in other words if the working poor weren’t subsidising your relative, they would be subsidising the big bureaucracy that was necessary to exclude her, and you’d be grumbling about that instead.

  35. Chris S 35

    Steve – that almost requires a new post. There is a lot of confusion over the “burden” that is being placed on the employer.

    In fact, in your scenario, I would think that the extra paperwork soaks up more money than the contribution 🙂

  36. 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.

  37. 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

  38. andy 38

    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..:)

  39. sean14 39

    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.

  40. IrishBill 40

    “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.

  41. 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.

  42. 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 🙂

  43. Matthew Pilott 43

    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.

  44. andy. Employers can deduct the contributions they make. Even better, the first $20 they contribute is completely free.

  45. Tane 45

    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’.

  46. r0b 46

    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.

  47. IrishBill 47

    “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?

  48. 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.

  49. andy 49

    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.

  50. Matthew Pilott 50

    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!

  51. 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”.

  52. sean14 52

    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.

  53. Matthew Pilott 53

    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!

  54. Draco TB 54

    The word compulsion is revered by the socialists.

    Actually, I see far more compulsion coming out of the right than I do from any socialist of any stripe.

    I thought that was why we needed superann in the first place Tane.

    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.

    It roughly indicates we have 80 odd billion dollars in savings growing at 15% per annum.

    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.

  55. Stephen 55

    Thanks for the reply SP. Though it appears there is still a bit more to this, going on the comments.

  56. 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.

  57. sean14 57

    Matthew – The Fast Forward Fund.

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