Governments should stop meddling with savings schemes and going back on promises made by previous regimes.
The Labour Government introduced a savings scheme in the 1960. About 15 years later, Sir Robert Muldoon, who led the National Government, scrapped it. Economists and observers say that had the Scheme continued, it would be worth more than $240 billion today.
Such money would have kept us in better stead, enabling us to fund rebuilding of Christchurch without any difficulty and avoided international rating agencies placing us on ‘Negative Watch.’
We would also have been able to manage the collapse of finance companies better and saved Finance Minister Bill English from presenting a dreary budget for 2011.
English’s tampering with KiwiSaver does little to instil confidence in a scheme that has been a political football in the past.
Greens Co-Leader Russell Norman labelled this as “A great tax switcheroo.’
This is because the Government will get back more in its newly introduced tax on employer contribution than it would give in annual incentives to people earning more than $58,000 per annum.
The Government will receive $18.67 more in tax from those earning $60,000, while it would sit comfortably with additional taxation of $468.57 (tax of $990 against incentive of $520).
Under the 2011 Budget changes, Government contribution to KiwiSaver has been halved from $1040 to $520 per year, resulting in a saving of about $2 billion.
It has also increased minimum employer and employee contribution to 3% and imposed taxation on employer contribution, which was tax free until now.
This is expected to yield $680 million in revenue, over the next four-years.
The bad faith of the Government was revealed in not only its tampering with this saving scheme but also its promise that the changes will not occur before the ensuing election in November 2011.
In fact, the changes would come into effect on July 1, 2011.
While it appears that the Government is cutting taxes, we would actually be paying more in a roundabout way.
I know some relatives and friends who were sceptical about KiwiSaver since the beginning, saying that it was expendable and come under the slashing knife at the slightest opportunity.
They were waiting to join the Scheme, hoping that it would not suffer tampering.
However, since their salary is more than $58,000, the Government will take more from them in the form of taxes than paying them as concession.
Hence, they will not join, and there goes the intention to promote this scheme.
Some existing members may decide to get out of the scheme as well, especially those on higher salaries as the tax on Government incentive would hit their pockets.
Commentators agree that the long-term vision of Government should be to promote savings and that Mr English should have left the KiwiSaver untouched.
The incentive of $1040 meant a great deal for the middle to low income earners and the self-employed.