Cuts to KiwiSaver tax credit but no 'slash and burn' Budget, says Key

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The May 19 Budget will see the Government change the mix of contributions to KiwiSaver, with less coming from the Member Tax Credit and more coming from both individuals and employers, said Prime Minister John Key.

Wednesday, May 11th 2011, 12:50PM 1 Comment

In a pre-Budget speech in Wellington today Key said that next week's Budget would see Finance Minister Bill English unveil measures aimed at making significant Government savings.

However, Key said "it won't be a slash and burn Budget."

"As the economy picks up, it is crucially important that our growth is not based, as it was in the 2000s, on debt, consumption and Government spending, but instead is built on the solid foundation of savings, exports and productive investment."

On the widely anticipated changes to KiwiSaver Key argued the scheme was popular with New Zealanders and changes were required to ensure its long term survival.

He also argued that in its present form, KiwiSaver did not constitute real savings as the Government has to borrow money to pay into the scheme.

"People might not realise this, but currently over $1 billion a year of what goes into people's KiwiSaver accounts comes from the Government, through subsidies and tax breaks. Over time, the Government has put in nearly half the money that has build up in KiwiSaver accounts," Key said.

"But that does not constitute real savings. That's because the government has to borrow to raise it, and the debt on one hand simply cancels out the saving on the other."

He said that while the Government contribution to KiwiSaver does nothing to boost the national level of savings, it does increase reliance on overseas lenders.

"The Government wants to put KiwiSaver on a sustainable platform for the longer term, as well as increasing national savings," Key said.

"In the Budget the government will change the mix of contributions to KiwiSaver accounts, with less coming from the Member Tax Credit and more coming from both individuals and employers. The $1,000 kick-start for new KiwiSaver members will remain as it is now."

He said increased contributions from businesses and individuals would occur at a time when the economy would have recovered and that the changes would maintain the total level of contributions into KiwiSaver funds.

"The advice we have had from officials, who have modelled the effect of the Budget changes, is that they will result in a modest improvement in the rate of national savings."

"National savings are only increased when the savings are genuine, that is, when they come from people or businesses or Government actually reducing their spending," he said.

"Otherwise we are all just kidding ourselves."

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