Tax credit reduction takes all the gloss off saving

Self-employed builder Dave Guichenet feels KiwiSaver has lost its momentum with the changes, but he will keep contributing to the scheme

The Government's input to KiwiSaver meant more to to self-employed builder David Guichenet than it does most people.

Because he does not have an an employer to match his contribution, the main drawcard of the scheme was the tax credit he received each year - around $1040.

But now that the tax credit has been halved by yesterday's Budget, Mr Guichenet, 56, feels he has been left with a watered-down savings scheme.

"From here on in, it's mostly what I put in. So, in a way, what's the difference between that and any other savings scheme I might set up?"

He contributes $21 a week to KiwiSaver, the minimum amount needed to get the top tax credit. Next month that credit will be halved to $520. The loss will cut his savings by 25 per cent.

Most workers will make up that loss from 2013 because their employers will have to chip in more, paying at least 3 per cent. But that is not the case for the self-employed.

Mr Guichenet, of Balmoral, said he would continue to contribute to KiwiSaver, but it had lost its momentum.

"Purely from inertia, I will keep paying the minimum amount. But had it been these rules from the start, I would have thought 'Why would I bother?"'

"And who knows, later down the track, another government might decide to bring it back."

Many KiwiSaver members will not have their final payout seriously affected under the altered scheme, because of the higher employer contribution.

But the need to put in at least 3 per cent themselves, instead of 2 per cent, could make it unaffordable for some people.

Prime Minister John Key has said that members could take a contributions holiday.

Finance Minister Bill English said the changed scheme remained attractive, and would save the Government around $640 million a year.

Mr Guichenet opened a KiwiSaver account when it started in 2007, and will have about $20,000 at age 65.

But his main concern is the breach of trust by the Government in tinkering with a popular scheme.

"I'm against the changes because we need to be encouraged to save ... It gives the wrong message at this time. I would prefer it if the Government stuck to the original one."


DAVE'S SAVING PRE-BUDGET:

$21/week + tax credit $20/week.

POST-BUDGET:

$21/week + tax credit $10/week.