KiwiSaver: business to pay more

Next week's budget will contain changes to KiwiSaver, Working for Families and interest-free student loans – programmes which collectively cost almost $5 billion a year, Prime Minister John Key said today.

“These programmes were introduced during a debt and consumption-driven economic bubble, and it is clear that they are unaffordable,” Mr Key said.

“None of the changes we will be making will affect people before the election so New Zealanders will be voting with all the information they need and can make their own choices.”

The Government intends to reduce the amount of money it has to borrow from overseas to put into KiwiSaver, and increase the amount of genuine savings from the private sector.

The mix of contributions to KiwiSaver accounts will change, with less coming from the Member Tax Credit and more coming from both individuals and employers. The $1,000 kick-start for new KiwiSaver members will remain as it is now.

The member tax credit, paid by the government, is worth up to $20 a week and the PM did not say how much it would be reduced by.

“The changes to KiwiSaver won’t happen immediately, and this will give people and businesses time to adjust,” he said.

The changes mean both businesses and individuals would be asked to pay more than the minimum 2% they can now, although Mr Key would not say just how much more, other than it would be “modest” and “affordable”.

If the government continued to borrow at the levels it was doing to support KiwiSaver, interest rates were likely to rise and businesses would have to pay more to access capital, he added.

Business New Zealand chief executive Phil O'Reilly said the big question was just when the increases in contributions would come into effect. He was pleased Mr Key said it would not be immediate.

“Any increase right now would cause affordability problems,” Mr OReilly said.

While some businesses could afford an increase today, others could not, he said.

Businesses had been concerned for a while that KiwiSaver was not affordable to the government, Mr O'Reilly said, so there was no real surprise the government had chosen to tackle that issue.

Mr Key said Working for Families will also be better targeted at lower-income families, who have a much greater need for assistance, and a little less generous to families higher up the Working for Families scale.

“We will do this gradually, in a way that minimises the impact on families,” Mr Key said.

The student loan scheme will also be adjusted but will remain interest-free.

“The changes we are making in the Budget will make all of these programmes more affordable and ensure they survive into the future,” Mr Key said. 

In a speech in Wellington, Mr Key said the budget will balance a number of the National-led Government's aims.

“Budget 2011 will set a credible path back to surplus while at the same time continuing to protect the most vulnerable New Zealanders, boosting frontline health and education services, and helping to pay for the rebuilding of Christchurch,” Mr Key said.

“It will contain significant savings, but will by no means be a slash and burn Budget. It will be a responsible Budget which helps ensure growth is built on the solid foundation of savings, exports and productive investment.”