Budget 2011: 'Broken promise' claims fly

John Key's Government class KiwiSaver contributions as borrowing but Phil Goff says that doesn't stack up. Photos / Sarah Ivey, Mark Mitchell

John Key and Phil Goff clashed in Parliament yesterday over whether the changes in tomorrow's Budget to KiwiSaver, Working for Families and student loans would amount to broken promises by National.

"If there are any changes to them, New Zealanders will be able to vote on that - it is called election day," the Prime Minister said in response to questions from the Opposition leader.

Mr Key also rejected Mr Goff's suggestion that changing the rules of KiwiSaver eroded trust and confidence in the savings scheme.

"The No 1 way to gain trust is to have a series of policies, go out to the public and campaign on them," Mr Key said. "Governments change their positions. Good governments in transparent times take it to the people."

The Government has recently adopted the position that its contribution to KiwiSaver of up to $20 a week or $1040 a year was borrowed and therefore did not contribute to greater national savings - the combination of private and Government savings.

Mr Goff asked why putting money into KiwiSaver was classed as borrowing but $2.5 billion a year tax cuts passed by National were not.

Mr Key last week foreshadowed changes that will reduce the Government's contribution to KiwiSaver and increase the starting rate for savers and their employers from its present 2 per cent - National cut it to 2 per cent from 4 per cent.

Mr Key said he realised people did not change from the rate on which they started, whether it was 2 or 4 per cent.

"The one thing I've come to learn is the biggest single driving factor in KiwiSaver is inertia."

The blended average of payments to KiwiSaver was 3.3 per cent.

KiwiSaver worked well, he said "because the money comes out of your pay packet and once that happens, people don't give too much thought to it. They just carry on living to what they have and take home every week."

Finance Minister Bill English hinted his Budget would not be big on setting new incentives to save.

"Savings are about people's willingness to give up spending money today so they can have it in the future."

New Zealanders' new savings habits had shown attitudes were already changing.

It was easy to portray tax breaks or incentives as somehow increasing savings "but if you are just taking out of one pocket and putting it in the other, it doesn't achieve that".

The Government has foreshadowed savings targets for the public sector which will surely lead to big job cuts.

Greens co-leader Russel Norman expressed concern that big spending cuts could induce a "double-dip recession" as happened following the 1991 "mother of all Budgets".

He suggested a temporary levy for rebuilding Christchurch, a capital gains tax excluding the family home and a charge on commercial water use.