KiwiSaver costs could impact wage increases

Some businesses might not increase their employees' wages to offset higher KiwiSaver costs, Prime Minister John Key has acknowledged.

Mr Key last week announced KiwiSaver would be trimmed in the budget because it was costing too much and wasn't sustainable in tough economic times.

Among the changes would be a reduction in the KiwiSaver tax credit, worth about $20 a month, to be made up by higher contributions from members and employers.

Mr Key wasyesterday asked whether there was a risk employers might withhold from their workers a projected wage increase, to be outlined on budget day, because of the increased cost of KiwiSaver.

He said employers had the right to do that.

"Employers have the right to look at total compensation when it comes to an employee, but in my experience with employers is they're actually quite supportive of KiwiSaver, and they don't object to paying the contribution.

"Obviously some have concerns about costs, I accept that, but for the most part they see benefits in people being in KiwiSaver."

Mr Key said while businesses would have to pay more into the KiwiSaver accounts of their employees, they would benefit from the capital the scheme injected into the economy.

"If the projections are right, in 10 years there's $60 billion sitting in those accounts that's got to find a home for investment, and that's also in the New Zealand private sector.

"So I think it's not a lose situation for businesses -- I think it can be a win-win situation."

Mr Key said the Government was not cutting all its contributions because some incentives, including a modest members' tax credit, made sense.

"Over the long haul, we think we've got the balance about right now for a long-term scheme that's sustainable."

Labour leader Phil Goff said that cuts to the tax credit would be felt by lower and middle income people.

"It's not much to people in the higher incomes, but it's a lot for those that are really having to scrimp in order to save."

He said feedback from people in his Mt Roskill electorate was that the move was the first in a series of cuts that would make things harder and harder.

"People can't get out of KiwiSaver. When people went into it, they went into it on an understanding that they would make this contribution, and that this contribution would come from the Government and this contribution from employers.

"That's now been changed unilaterally and to their disadvantage. That's why they feel betrayed."

Mr Goff said it would take some time to develop a policy on reversing National's changes to KiwiSaver.

"One of our priorities, if we look at the broad objective, will be to make sure that more and more people continue to save, and have the ability to save.

"How we deal with the specific cuts and what we reverse there and what order we do it in, that's going to take some time, to have a look at what the picture is before we can be certain."