Government not ruling out cuts to its $521 a year KiwiSaver contribution

• Finance Minister Nicola Willis says she has found “billions” in savings that will be redeployed to new spending in the 2025 Budget.
• Speaking to Heather du Plessis-Allan Drive, she refused to rule out whether those savings would come from cutting a KiwiSaver subsidy.
• The Treasury Secretary has spoken about means-testing the subsidy.

Finance Minister Nicola Willis has left the door open to means-testing for large Budget items, including Government KiwiSaver subsidies, as she looks to make savings and chart a path back to surplus.

Willis also left the door open to means-testing the Best Start payment for new parents, although this seems less likely.

In an interview with Heather du Plessis-Allan Drive on Tuesday, Willis was asked three times whether she could rule out some form of means-testing for the payments.

While Willis ruled out changes to the Winter Energy Payment or the Emissions Trading Scheme, she did not rule out changes to KiwiSaver subsidies or Best Start.

“You’ll have to wait and see in the Budget to see what savings we’re delivering. We’ve been really careful the proposals we’re putting forward are fair and affordable and they meet that test,” Willis said.

When asked by du Plessis-Allan whether this was effectively confirmation of means-testing, Willis replied: “Well of course we have means-testing across government right now, which is basically that people on much higher incomes often don’t need as much support as people on lower incomes.

“People on higher incomes aren‘t eligible for all the same supports as people on lower incomes are,” she said.

Asked about further things that might be in the Budget, Willis pulled herself back.

“Now we’re playing the rule-in, rule-out game,” she said.

The Best Start payment was introduced as part of Prime Minister Jacinda Ardern’s “families package” passed in 2017. It gives families a $73 weekly payment to help with the costs of raising a young child.

Currently, New Zealand residents aged 18 and over can get up to $521 a year dropped into their KiwiSaver accounts from the Government if they contribute the equivalent of about $20 a week - $1040 over the year.

The payments are set to cost the Government $1.1 billion in the next Budget, or 0.7% of all core spending.

A popular threshold for means-testing is about $180,000 for an individual or household — this is where the top tax rate kicks in. It is also the level at which a household can no longer claim the Family Boost tax credit.

Willis has sought advice on KiwiSaver reforms and is keen to increase contribution rates.

Labour‘s finance spokeswoman Barbara Edmonds said the refusal to rule out cuts to the two initiatives was “a clear sign that this Government is considering slashing vital support that Kiwis rely on”.

“Failing to rule out cuts to these vital programmes is yet another terrible choice made by this Government. They had no problem borrowing $12b for tax cuts, but when it comes to investing in what Kiwis care about most — jobs, health and homes — it’s cut after cut,” she said.

While the Government borrowing programme was lifted by $12b at the last Budget, Treasury considered the 2024 tax cuts to have been fully funded. The increased borrowing was largely put down to the deteriorating economy reducing Government revenue.

In her scene-setting speech on Tuesday, Willis said the Government had looked to extinguish old programmes that had not delivered value for money in order to redeploy that funding somewhere else in the Budget.

While overall Government spending is set to increase this year - as it does every year - Willis’ Budget plan is to free up money to better fund existing services and new services by cutting spending elsewhere.

She said most of the programmes that were facing cuts were begun under the last Labour Government, while other cuts were coming to things that had been around for some time. The KiwiSaver subsidies have existed since the fifth Labour Government began the scheme in 2007.

“The Government’s savings drive has freed up billions of dollars,” Willis said in her speech, referring to programmes that have been cut and planned spending increases that will now no longer go ahead.

Willis and Treasury secretary Iain Rennie had fuelled speculation these two lines of spending might be in for reform in two interviews with the Herald published over the summer.

Rennie suggested greater targeting of payments would be a way of improving the Government’s finances.

Rennie noted while the Government’s subsidy to KiwiSaver members of $521 a year would make a real difference for low-income earners, people like himself didn’t need it.

Willis, in a summer interview, said “there are a lot of entitlements and support that have crept into the middle and upper class, and I would prefer to have a system where we don’t keep hiking tax rates in order to give people’s money back to them in the form of different entitlements”.

She noted her own family would have been eligible for thousands of dollars of Best Start payments.

“Is that really necessary when there‘s a two-income household?” she asked.

However, changes to Best Start seem less likely than those to KiwiSaver.

Labour Finance spokeswoman Barbara Edmonds is urging Willis to rule out the cuts. Photo / Mark Mitchell

Former Reserve Bank economist Michael Reddell supported the idea of means-testing and thought the Government subsidy should be taken away entirely.

While KiwiSavers have a collective $110.8b in their schemes, Reddell is doubtful KiwiSaver encouraged saving that would not have taken place anyway.

“There’s no sign that KiwiSaver has made any material difference to national savings rates,” he said.

Reddell said there was “a fair amount of evidence globally that returns to savings don’t make a huge amount of difference to what people save”.

He said savings rates tended to be “deeply cultural”.

“Some of it is about high incomes. When people find their incomes are growing faster, they can afford to save more,” he said.

He said on the broader economic level, the most important kind of savings were business savings.

Businesses only saved, or retained earnings, if they were confident of good future returns.

Thomas Coughlan is the NZ Herald political editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the Press Gallery since 2018.