KiwiSaver or Taxes Set to Face Changes

December 8, 2008 New Zealand FinanceNew Zealand Taxation  No comments

The Government is looking to implement changes to the KiwiSaver scheme, specifically targeting inequality between high and low income earners.

To help finance its tax cut policy, the National party planned to implement changes to Kiwisaver contribution rules. Specifically, the required contribution one would have to make would be cut from 4% to 2%, while the Government matched amount would still be capped at $20.

Amongst low income earners this led to criticism as those earning below $52,000 would not be able be eligible to receive the government’s full $1,040 contribution. Subsequently the end result for low income earners would be a much lower total savings amount in their KiwiSaver account.

Solutions to this inequality are being debated in Parliament this week. New Zealand Prime Minister John Key stated in a press conference on the 8th of December that to top up each earners government contribution to $1040 would cost roughly $700 million over the next five years. In pre-election projections, the National Party said that their tax cut policy would yield savings of $580 million, significantly lower than the cost of the scheme.

Other National proposed ways of financing these changes is to abolish the $40 annual contribution to each savers accounts made by the government, which would result in an estimated saving to the government of $30 million. The other proposed change would be to make alterations to National’s tax cut policy, in an effort to reduce its costs. These would most likely come in the form of a lowering in proposed cuts to taxes.

More detail and decision on the situation is expected to be revealed before the end of the week, on Friday the 12th of December.