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No KiwiSaver auto-enrolment until Budget back in surplus

Tuesday 18th October 2011

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The government won’t consider automatically enrolling New Zealanders into KiwiSaver until its books are back in the black, Finance Minister Bill English has announced.

With automatic enrolment estimated to cost $550 million over four years, English says that’s money the government can’t afford until the annual Budget returns to surplus, currently forecast in three years’ time, in 2014/15.

“While we’re running deficits in the next two years, that’s money the government would have to borrow,” English said in a statement.

“Borrowing more money to put into KiwiSaver accounts is not real savings – we are applying the same approach to resuming contributions to the Super Fund.”

In the meantime, the government will issue a discussion document on the issue next year.

Most of the projected cost would come from the $1,000 kickstart payment the government makes to every new KiwiSaver contributor as they enter the national retirement savings scheme.

The announcement comes after Standard & Poor’s and Fitch Ratings each cut New Zealand’s sovereign credit rating a notch, due to the lack of private savings and high levels of private foreign debt.

While English has been open to incentives to encourage domestic savings, changes announced in the May Budget ran counter to that, reflecting the government’s unwillingness to “borrow to save.

”English said then that the government agreed with the Savings Working Group that a compulsory savings regime wasn’t warranted, though an August survey conducted by Massey University found more than half of those polled warmed to some form of compulsion.

The government rejected the group’s recommendation to lift GST, and partially adopted other advice, such as lifting the employer’s contribution 1 percentage point to 3 percent from 2013 and increase the employee’s contribution, while at the same time cutting its own annual subsidy in half, having already removed the employer’s tax break a year earlier.

The employer contributions also lose their tax-free status from April next year and will be taxed at the employee’s marginal rate, which government officials figured will be the least controversial cut.

While it will save the Crown an estimated $678 million over four years, it is “relatively hidden,” Budget documents said.

The cost of New Zealand’s ageing population was $8.83 billion in the 12 months ended June 30, the single biggest transfer payment or subsidy and 12.5 percent of core crown expenses, according to the Crown accounts.

That bill has kept bodies including the Treasury, International Monetary Fund and Retirement Commission pressing for action on the level and age of entitlement to New Zealand’s universal superannuation.

The Treasury has estimated GST would have to rise to 19 percent or personal taxes would need to increase by $30 a week from early next decade to maintain the current system.

Alternatively, the government could slash total spending by about 7.5 percent from the early-2020s.

The Savings Working Group’s February report pressed for tax reform as a means to improve the nation’s savings rate, and found people under the age of 45 don’t have security for pension income because national superannuation can’t survive in its current form.

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