KEY POINTS:
It should be no surprise that employees in KiwiSaver with bosses who pay above the current minimum will have to pay extra tax, Finance Minister Bill English said this morning.
National yesterday revealed the fine print of its KiwiSaver policy which showed it will cost some savers hundreds
of dollars every year.
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.
Mr English today said National had campaigned on dropping the tax exemption and no one should be surprised by the move.
"Its been available to anyone who wants to investigate what our policy is, it's inherent in the 2 per cent policy," he told Radio New Zealand this morning.
"I spoke all around the country and made it quite clear what the policy was. It won't be any surprise to anyone."
The country was facing tough economic times, Mr English said.
"We wanted to make sure we covered the cost of increasing the member tax credit for people earning under $52,000, so there's a little bit that comes out of every KiwiSaver account and it helps us to pay the cost of a bigger incentive for lower income savers."
But Labour leader Phil Goff said the downsides had not been made clear until now.
National's two biggest changes to the Kiwisaver 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.
Mr Goff said the reduced minimum contribution would mean the scheme was less portable between Australia and New Zealand.
Dollar for dollar
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.
Mr English's office estimated that the change would save the Government $231 million over five years.
Tax cut legislation
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, Mr 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).