KiwiSaver changes 'will hit low-paid'

Labour leader Phil Goff said the National government had more than quadrupled the deficit. Photo / Sarah Ivey

Low and middle income earners will be hit in the pocket by the Government's changes to KiwiSaver as they and their bosses are forced to pay for reduced Government contributions, Phil Goff warned yesterday.

Prime Minister John Key yesterday confirmed next week's Budget will reduce the Government's contributions to KiwiSaver to make it more affordable over the long term.

In a pre-Budget speech, Mr Key said his Government would reduce the KiwiSaver member tax credit - the subsidy of up to $1043 a year or $20 a week for each worker - as it seeks to reduce the $1.1 billion a year it spends on the scheme.

Individuals and employers would be forced to make up the difference with higher contributions, and in most cases savers would end up with more going into their accounts, Mr Key said.

"I don't think we can stick with a situation where half of all KiwiSaver contributions come from the Government and the Government's simply borrowing the money from somewhere else. That's not sustainable ... that's not lifting national savings."

Labour leader Mr Goff said Mr Key's government had more than quadrupled the deficit and that had to be paid for, but cutting the government contribution would hit workers on lower and middle incomes worst.

"If you're going to make cuts, why don't you begin with those that have the biggest tax cuts - the highest income earners, rather than take it out on the lower-income people?"

He said Labour would spread the burden more evenly, although such cuts were difficult to reverse all at once when there was a big deficit.

Green Party co-leader Russel Norman said the proposals disproportionately required low and middle income earners to bear the cost of Government fiscal mismanagement.

"Those families living on the economic edges will be more likely now to opt out of saving for their retirement. This will exacerbate the income gap when they retire. And those who do stay in the scheme will have a smaller nest egg at retirement."

Mr Key said the Government's $1000 "kick-start", paid when savers enter the scheme, and the option to cash up savings for a deposit on a first home would remain.

He would not reveal the amount by which the member tax credit, which costs the Government $880 million year, would be reduced or by how much minimum contributions would rise from their 2 per cent of gross income level, saying that would have to wait until next Thursday's Budget.

But he described the increases in employee and employer contributions as "modest" and "affordable" and pledged they would not happen until after the election, and only when the economy had "well and truly recovered, and both wages and employment are increasing".

Business NZ chief executive Phil O'Reilly said businesses would struggle if they had to increase their contributions immediately.

There was "no question" that increased employer contributions would be taken into account in setting wages.