Why axing kickstart is an act of bad faith

Labour Party leader Andrew Little. Photo / NZME.

A broken promise is when someone reneges on something they promised to do or not do.

If you were silent, say, about axing the $1000 kickstart payment for new KiwiSaver members, it is not a broken promise, strictly speaking.

But it is an act of bad faith, especially when it happens in the first Budget following an election in which kickstart payments were not mentioned.

The amount of tinkering and tampering with the KiwiSaver scheme since it was announced in 2005 is incredible.

Most of Labour's changes served to benefit the saver at the expense of the public purse. Not surprising seeing as it began the scheme.

And most of National's tampering has reduced benefits to the saver and helped the public purse.

National has made changes twice before, but on both occasions, in 2008 and in the 2011 Budget, they were backed up by an electoral mandate.

If Labour had won in 2008, or 2011, none of the changes foreshadowed by National would have gone ahead.

Opposition MPs argued during urgency on Saturday that National could have given two or three years notice of its intention to axe kickstart.

Giving notice would never have been an option for any Government in tight times because of the result in having to cough up another $1 billion or so in kickstart payments to new members after the stampede.

The only three options realistically open to the Government were to reduce it, which would also have caused a stampede of new members and allegations of bad faith, to ditch it or keep it.

There is no surer way to unnerve mature voters than to start tinkering with retirement savings or to think aloud about them. The blunder by Labour leader Andrew Little on Friday was inexplicable.

He said it was unfair that someone could work beside a superannuitant who got the same amount for the same job but who also was able to claim the pension - the natural corollary being that something had to give: either the wages or the pension.

The only explanation is that he hasn't quite made the transition from union leader to political leader where that sort of argument is political suicide.

National and Labour have both unnerved savers and older voters, and are turning superannuation and retirement savings back into a political football.

The only party to benefit from that will be Winston Peters' New Zealand First.

A lifetime's tinkering

Labour

1. May 2005
Scheme announced by Michael Cullen in 2005 Budget to start July 2007:

Kiwisaver members to contribute 4 per cent or 8 per cent of their gross income to an account, voluntarily.

Automatic enrolment for employee on starting a job but ability to opt out. Employers contributions to be voluntary.

Government to make $1000 kick start payment; offers a first-home subsidy of $1000 per year up to $5000; an annual fees subsidy of $40

2. August 2006
Govt announces that when scheme starts (in 10 months) that matching contributions by employers up to 4 per cent would be tax exempt.

3. May 2007
Seven weeks before the scheme was due to begin, three big changes were announced:

•First, compulsory matching employer contributions, starting at 1 per cent from April 2008; 2 per cent in 2009, 3 per cent in 2010 and 4 per cent in April 2011;

•Second, a member tax credit (MTC) introduced, Govt to match savers $1 for $1 to a maximum $20 a week or $1040 a year. From April 2007

•Third, an employer tax credit (ETC), from Govt to employer, meaning the Govt to reimburse 100 per cent their contributions up to $20 a week from April 2008.

National

4. December 2008
Newly elected National Govt abolishes $40 annual fees subsidy from April 2009; minimum employee contribution reduced from 4 per cent to 2 per cent; employer's minimum compulsory contribution capped at 2 per cent; the tax-free employer contribution of 4 per cent of employee's gross limited to 2 per cent; and employer tax credit (ETC) of up to $20 a week abolished.

5. May 2011
In the 2011 Budget Bill English announced three major changes:

•First, all employer contributions for employees' Kiwisaver accounts (and complying super funds) would be subject to an Employer Superannuation Contribution Tax (ESCT), from April 2012.

•Second, The member tax credit (MTC), Government was halved to 50c for every $1 contributed by members to a maximum of $521 a year, taking effect in the 2011 - 2012 year;

•Third, the minimum employee contribution and compulsory employer contribution rose from 2 per cent to 3 per cent from April 2013.

6. October 2011
Bill English announces that subject to returning to surplus, the Govt would introduce auto-enrolment for all employees in the country in 2014 - 15 in a one-off exercise and employees could still opt out; plus a retendering process for default Kiwisaver providers. It hasn't happened yet.

7. May 2015
The Budget abolishes the $1000 kick start grant for new members. PM John Key says the $521 Member's Tax Credit is "rock solid."

•Sources: Govt press statements and the Retirement Policy and Research Centre, University of Auckland.