KEY POINTS:
Employees in KiwiSaver with generous bosses who pay above the current minimum will have to pay extra tax.
That became clear yesterday as National revealed the fine print of its KiwiSaver policy.
That will cost some savers hundreds of dollars every year.
For example an employee earning $60,000
a year and paying 4 per cent into KiwiSaver, and who is matched dollar for dollar by his or her employer, will pay almost $400 a year extra in tax.
The effect of the fine print in removal of a present tax exemption became evident yesterday when National was announcing the details of changes to the subsidy the Government gives savers.
That change will make it fairer on low-income earners than previous National policy.
National's two biggest changes to the scheme turn it from a four plus four scheme (4 per cent minimum from an employee to 4 per cent minimum by 2011 from employers) to a two plus two scheme, and cut the Government subsidy paid to employers.
The changes will be part of tax-cut legislation introduced into Parliament last night and to be passed under urgency before Christmas.
The tax cuts will be phased in over three years, taking effect in April next year, then April 2010 and April 2011.
Labour's tax cuts, which took effect on October 1, will remain.
Someone on the average wage of $52,000 will be better off by about $18 a week from April next year.
Labour finance spokesman David Cunliffe called it "Robin Hood in reverse", giving less to the poor and more to the wealthy.
The cost of the changes to tax rates and thresholds and the introduction of the independent earner tax credit would be $4.4 billion over five years, finance Minister Bill English said yesterday.
The cost was being recouped by stopping the Research and Development tax credit scheme ($1.3 billion) and changing to the KiwiSaver scheme ($3.5 billion).
National yesterday revealed revised costings and savings of its tax package.
Mr English said that after lobbying from the Council of Trade Unions and the Public Service Association, National would restore the dollar for dollar subsidy to all KiwiSaver members up to $1040 a year.
Under National policy announced during the election campaign, 136,000 savers who now receive the full member tax credit from the Government of $1040 a year (up to $20 a week) would have had it reduced.
The cost of changing the policy will be recovered by cutting a $40 administration fee annual subsidy to all KiwiSaver accounts, costing $203 million over five years.
The biggest loss relative to the status quo will now be to savers whose employers pay more than they are required under law.
The employer contribution to KiwiSaver is now exempt from tax up to 4 per cent.
But the new minimum contribution will be 2 per cent - for employer and employee - and the tax exemption will apply only to the 2 per cent employer contribution.
That means that an employee on $60,000 who continues to receive a 4 per cent contribution ($2400) will have tax of 33c applied to half of it ($1200) taking $396 from what would otherwise stay with the saver.
But Mr English's office estimated that the change would save the Government $231 million over five years.
