Govt Kiwisaver cuts slammed

Prime Minister John Key has confirmed that Kiwisaver's member Tax credit will be cut. Photo / Mark Mitchell

The Government's decision to reduce KiwiSaver's Member Tax credit means middle and lower-income New Zealanders are paying the price for National's poor economic management, according to the Green Party.

Prime Minister John Key this morning confirmed his Government will reduce KiwiSaver's Member Tax credit - the subsidy the Government pays to savers in the scheme - in a move to make it more affordable.

Individuals and employers would be expected to make up the difference, he said in a pre-budget speech in Wellington today.

Mr Key acted to clarify his Government's intentions toward the scheme after days of hints of changes to the scheme and Working For Families to come in next week's Budget.

The amount of the tax credit reduction will be announced in the budget. Under the tax credit, the Government matches contributions by up to $1042.86 each year. This works out to about $20 a week.

"The Government intends to reduce the amount of money it has to borrow from overseas to put into KiwiSaver, and increase the amount of genuine savings from the private sector," Mr Key said.

"The mix of contributions to KiwiSaver accounts will change, with less coming from the Member Tax Credit and more coming from both individuals and employers. The $1000 kick-start for new KiwiSaver members will remain as it is now."

Green Party co-leader Russel Norman has blasted the proposals, saying they will "disproportionately require those on low and middle incomes to bear the cost of the Government's 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.

"The Government is failing a simple fairness test when it comes to reigning in their record fiscal deficit - a deficit they must take responsibility for creating."

As previously indicated, Mr Key said the changes would not occur until after the November election, giving people and businesses time to adjust.

"Increased contributions from people and businesses will happen at a time when the economy will have well and truly recovered, and both wages and employment are increasing."

The changes were expected to maintain total contributions into KiwiSaver and "modestly improve the rate of national savings".

Mr Key again said Working for Families would also be better targeted at lower income families while being less generous to wealthier families.

"We will do this gradually, in a way that minimises the impact on families."

The student loan scheme is also to be adjusted but would remain interest free.

- with NZPA