By Duncan Garner
The Government will tax employer contributions to KiwiSaver which will leave all KiwiSavers worse off.
Since KiwiSaver began employee contributions have been tax free.
But Bill English has today closed the loophole. It will see everyone in KiwiSaver, especially high income earners, worse off.
Employer contributions will rise from 2 to 3 percent and worker contributions will also rise from 2 to 3 percent. Both take effect from 2013.
But from next year English has closed the tax loophole. It means even though employers are giving you three percent – you won’t get the full amount. It will, for the first time, be taxed. Those on low and middle incomes will be least affected, those on high incomes will see their employer contributions stay flat because of the impact of the new tax – despite the rise to 3 percent.
Treasury have crunched the numbers for me and it goes like this.
If you are on $100,000 and in Kiwisaver today’s changes mean from 2013 you will receive $990 less from your employer every year compared to today because of the new tax. If you are on $75,000 a year you will be $675 a year worse off. If you are on $50,000 a year you will be $262.50 a year worse off.
All up these changes will raise the Government $175 million a year. It’s a new tax on savings.
Meanwhile the changes to Working for Families are minimal. A few people will be a dollar or two worse off. Others will be better off.
The Government has found $5 billion dollars of savings but it’s gone and spent $4 billion of that with increases to health, education and justice.
Treasury is estimating 4 percent growth over the next two years and says 170,000 new jobs will be created by 2015. But what if Treasury is wrong, like it has been over the past four years?
As a country we remain firmly in debt and will be until 2014/15. We are still borrowing $380 million a week. That will come down to $100 million a week in over a year when economic growth kicks in.
But Key and English say the books will be in surplus by 2014/2015, when the Government will record a $1.3 billion surplus.
Will that really happen? It still looks like the Finance Minister has his fingers crossed behind his back as he makes this prediction. It relies on economic growth kicking in, and kicking in fast.
But it’s a bit of ho-hum budget. As Bill English says, it’s balanced and responsible. Dull is another word. Forgettable is another. There are a few cuts here and there.
Neither KiwiSaver nor Working for Families have been gutted. They’ve been given a haircut, and not a very severe one. It leaves plenty of room on the right for Don Brash to squawk. It leaves plenty of room for Phil Goff to moan that not enough has been done.
But in the end the electoral cycle has written this budget. John Key and Bill English have one eye on the voters, the other eye on the budget. It means it’s neither here nor there. It certainly doesn’t slash and burn, but there aren’t too many lollies in sight either.
A four year term would have seen a different budget, but this is an election year budget. Not because it’s generous, but because the really tough decisions have been put off for another day.