Kiwisaver scheme will be difficult to scrap, Key says

It will be difficult for National to "rip up" the Kiwisaver scheme if it is elected to Government, finance spokesman John Key says.

Mr Key outlined National's thinking on savings policy in a speech to a superannuation funds conference yesterday.

He said National acknowledged that some people might have a problem saving and there was no harm in erring on the side of encouraging more saving. Labour recently passed legislation to set up the Kiwisaver scheme to encourage workplace savings.

National voted against the legislation but has yet to say what it would do about Kiwisaver if elected in 2008.

Mr Key said National had to be realistic and acknowledge that Kiwisaver was now enshrined in law.

"We would be reluctant to rip up something that the industry has put so much time into," Mr Key said.

While National had no formal position on the future of Kiwisaver, Mr Key believed it would be very difficult to unwind the scheme.

In his speech, Mr Key said National's yet-to-be-formulated policy on savings would emphasise the need to reduce tax on savings to increase the incentive to save.

He did not support an approach to penalise some forms of savings with heavier taxes, such as a capital gains tax on housing, to change saving patterns.

Mr Key said he could see some benefits in compulsory savings but it was not his preferred option.

"While I wouldn't rule out considering compulsory savings, it wouldn't be my first cab off the rank, nor even my second," Mr Key said.

In a speech prepared for the conference, Finance Minister Michael Cullen said he was looking at extending tax breaks for the Kiwisaver scheme to existing workplace-based retirement saving schemes.

The Kiwisaver scheme will have employer contributions exempt from withholding tax, which, along with other incentives such as start-up contribution of $1000, has led some to fear for the future of existing workplace savings schemes.

In the speech, which was delivered by Associate Finance Minister Clayton Cosgrove, Dr Cullen said extending the tax break would come at a significant cost.

"That will have to be balanced against competing demands on the fiscal purse and the impact an extension would have in encouraging greater savings," Dr Cullen said.

A spokesman for Dr Cullen said Treasury was working on how much the extension would cost and no ballpark figure was available.

Dr Cullen said the Government was seriously considering the tax exemption extension and officials had been working on the issue for some weeks.

Any decision to extend the exemption would likely be on the condition the schemes were portable when people moved jobs and were locked in until retirement.

- NZPA