The unions have proposed an alternative to National’s plan to slash Kiwisaver in half. If Kiwisaver has to be cut, and with National/Act in power it will happen one way or the other, then I prefer the union plan.
As it stands now, you contribute 4% of your gross earnings, your employer matches that 4% (once the scheme is fully implemented in 2011), and the Government matches you dollar for dollar up to $20 a week (ie everyone earning over $26,000 a year gets $20 a week). The Government also refunds your employer up to $20 a week on their contribution to your Kiwisaver and anything above that is tax deductible for your employer (so each dollar over $20 a week costs your employer 70 cents and the Government 30 cents).
National pledged to change this ‘4+4′ scheme to a 2+2’ scheme. You contribute 2% and your employer matches that 2%. Obviously, you only get half the employer contributions but you also get less from the government if your income is below $52,000 (the point where weekly contributions hit $20 at 2% of gross income). Under National’s plan, you lose contributions worth 4% of your gross income if your income is below $26,000, you lose 2-4% if your income is $26K-$52K and 2% above that. From lower matching contributions and lower refunds to your employer, National projects they would cut $3 billion out of government contributions to Kiwisaver. That’s what would pay for their tax cuts for the wealthy. A typical tory policy, it hits the middle income earners* hardest to benefit the well-off.
The unions have proposed that, if Kiwisaver must be cut, then it be done by keeping it a 4+4 scheme but capping employer contributions at $20. That way people on incomes up to $26,000 would be no worse off than under the original plan. And anyone earning less than $100,000 would not loss more than 1% of their gross income compared to National’s plan. This wouldn’t save the Government as much National’s plan and would be more costly to higher income earners but would protect people on middle incomes ($20K-$40K).
Key has apparently welcomed the plan, which should be a good thing but raises two worrying questions. How much thought did the Nats put into their changes if they’re willing to ditch it for another one just like that? Or is Key just telling the unions want they want to hear, as he is wont to do? If he is just placating the unions and has no intention of altering his plans, he will get a quick lesson that the tricks you can play in opposition come back to bite you when you have a position of real responsibility.
*(the median income is $27,000, people on incomes between $20K and $40K are over-represented in Kiwisaver)