KEY POINTS:
The final shape of the Government's big savings push has taken employers by surprise, with firms immediately complaining of an unwanted cost rise.
From next April, employers will be forced to start contributing to a worker's KiwiSaver account if the employee opts to join the scheme.
Incentives for saving in the Budget were flagged weeks ago, but the inclusion of a requirement for employers to contribute to an employee's retirement savings scheme was a surprise feature.
Finance Minister Michael Cullen argued it was in the best interests of employers to get involved in helping their employees save, partly because it would create employee loyalty.
"It makes it much more likely we will retain people within New Zealand," Dr Cullen said.
"There is no question in my view that the long-term interests of employers is actually in encouraging their employees to join KiwiSaver and to contribute to stronger capital markets in New Zealand, and to contribute to stronger employee loyalty in New Zealand."
But business groups were less enthusiastic. While companies will be able to claim back a chunk of their contributions from the Government, over time that refund will gradually fail to cover the company's outlay, meaning employers will be directly funding the employee's saving contribution.
To offset that, it appears likely employers will bargain to give lower wage increases to their staff.
Dr Cullen conceded as much yesterday, saying the Government expects that the phase-in of compulsory employer contributions "will be taken into account in wage and salary bargaining".
He hailed as an example a current campaign by the Engineering, Printing, and Manufacturing Union, in which it is seeking part of a pay increase to come by way of an employer contribution into KiwiSaver.
Employers and Manufacturers Association chief executive Alasdair Thompson said there was little doubt there would be a trade-off in future wage rises.
"An employer looks at the total remuneration package," he said.
However, he doubted employers would necessarily be able to claw back all the money they were putting in.
Business New Zealand chief executive Phil O'Reilly also argued the move for compulsory employer contributions would load costs on to companies "that are not needed at this difficult time" - even with the reimbursements that would come from the Government.
Mr O'Reilly said that employer support for the scheme was critical for its success.
"Really, I think the Government is testing that support very severely when they say 'by the way on top of all of those things we'd like you to do - compliance etc - we're now going to put in a compulsory increase in your costs'," Mr O'Reilly said.
There is little doubt Labour has made the KiwiSaver for workers very attractive, and its move is likely to boost the take-up rate of the scheme which gets off the ground on July 1.
The National Party said it was not totally opposed to incentives for savings, but questioned the ability of some people to afford to save 4 per cent of their income to gain the benefit.
People already facing rising costs and interest rates while on modest incomes would struggle to put that much money away, the party argued. National's finance spokesman, Bill English, said taxpayers were funding their own saving incentives, and savers could "forget about" increases in their net pay for years to come.
"When the workers go to the boss and say, 'I want a pay rise', the boss will say, 'Sorry but Dr Cullen has already given it to you - it's sitting in your account and you'll get it when you're 65'," Mr English said.
National has not taken a position on whether it would repeal Dr Cullen's latest KiwiSaver enhancements, saying last night only that it would look at what was now becoming a very complex scheme.
New Zealand First leader Winston Peters, a strong proponent of compulsory retirement savings, called the changes a "substantial leap forward".
