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Government halves KiwiSaver tax credit

NZPA

Thursday 19th May 2011 2 Comments

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The Government is telling both employers and employees to put more money into KiwiSaver to help increase savings, while it halves its tax credit support and taxes compulsory employer contributions that had been exempt.

The $1,000 kick-start stays, but the value of the member tax credit halves to $521 from $1040 from the year to June 30, 2012 and beyond.

From April 1, 2013 the minimum employee contribution rate rises to 3% from 2% and the compulsory employer contribution rate also rises the same amount to 3%. The compulsory employer contributions were not taxed in the past but in future they will be taxed at the emplopyees' marginal tax rate.

"We believe most people will find 3% affordable," Finance Minister Bill English and Revenue Minister Peter Dunne said.

There is no move to make the scheme compulsory - employees can still opt out - but a consultation is planned on an exercise to get more people to join.

KiwiSaver has been more successful than Treasury predicted and this increased its cost to government to $1 billion a year. The Government says it makes no sense for it to borrow money to help people save and the changes announced today will help the Government's accounts return to surplus sooner.

Ahead of the Budget credit rating agency Standard & Poor's said measures to improve national savings were one of the things it was looking for in the Budget.

"KiwiSaver funds will continue to accumulate rapidly," the ministers said. They said increasing private contributions to KiwiSaver will help national savings.

Total funds in KiwiSaver should grow to $60 billion in ten years.

 



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Comments from our readers

On 20 May 2011 at 10:21 am Mark MacDonald said:
about 34 years ago the goverment of the day had a similar scheme. I'm not sure of the exact details but I put in $700 and the goverment matched it with $700.It lasted one year beore they scrapped it.I can't touch it till I'm 60 but it has built up to about $13,000 and the outit I invested it with has changed hands about five times over the years.I never had much faith in these companies but felt that given the fact that I only had to put in 50% of the initial capital even if they were at worst case senario half useless(which they were) it was still a good deal.I was in kiwisaver from the beginning maximising(but no more)the subsidies available.Once again what I was getting seemed to good to last and guess what?
On 20 May 2011 at 5:39 pm kamel hanna yacoub said:
self employed people should be exempted from the .$ 1042 tax credit cuts .they are tottaly dependets on themselves in building a little savings for future retirement
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