KiwiSaver 'bad news' for small business

By Tamsyn Parker

Business NZ has rubbished claims made by the finance and expenditure select committee that compulsory employer contributions to KiwiSaver are unlikely to impose significant financial strain on small or newer businesses.

The claims were made in a report produced following the first reading of a bill designed to introduce a number of enhancements and clarifications to KiwiSaver, including compulsory employer contributions which were first announced by the Government in the May Budget.

The report states that the majority of the committee members do not support arguments that the compulsory employer contributions provisions will cause financial strain because it will be phased in and employers will be reimbursed through tax credits.

"We understand that the compulsory contribution will be phased in over time. Employers will be reimbursed for KiwiSaver contributions with a matching tax credit up to a maximum of $20 per week per employee.

Any compliance costs incurred by integrating KiwiSaver into the PAYE system will be minimised," the report says.

Compulsory employer contributions are due to kick in from next April when employers will have to contribute at least 1 per cent of their employees' annual gross salary or wages to their KiwiSaver scheme. That level will increase by 1 per cent per year until 2011 when the employer contribution will be fixed at 4 per cent.

The Government's employer tax credit of up to $20 per week will cover the compulsory employer contribution for most employees in the first year. In the second year it will cover the 2 per cent contribution for those who earn up to $52,000. But anything above that level will have to be funded by the employer.

Business NZ chief executive Phil O'Reilly said he could not understand how the committee could come to the conclusion that small businesses would not be significantly affected.

"Employer contributions will be particularly onerous for small businesses as it will put their labour costs up."

He said businesses like cafes would be faced with higher costs which would have to be passed on either through lower wage increases or by being passed on to the end customer.

He said Business NZ had been highly disappointed at the lack of consultation before the May announcement and was now feeling frustrated by changes that the Government was having to bring in to clarify the initial legislation.

O'Reilly said Business NZ would continue to work with the Government to make the best of the situation but he predicted further complications as the Government rushes to get the legislation for KiwiSaver mark two in place before the end of the year.

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