David Snell: KiwiSaver kick-start is history

There are no more $1000 kickstarters for new KiwiSavers. Photo / NZ Herald

Opinion

From 2pm yesterday, people enrolling in KiwiSaver no longer receive a $1000 kick-start payment. That will save the Government $500 million over four years. To put it another way, the Government picks 500,000 Kiwis will each be poorer by $1000 over the next four years.

The surprise move opens up questions - about take-up, the impact on savings and fairness across generations.

KiwiSaver's been incredible in terms of take-up. As Finance Minister Bill English says, 2.5 million New Zealanders have KiwiSaver accounts and have claimed the kick-start. So you might say the horse has already bolted here. If the kick-start isn't good policy, then it's too late to worry now.

But if 2.5 million have enrolled, that means 2 million New Zealanders haven't - not just the 500,000 planned in the next four years. Of course, many will be ineligible - for example, over 65s - or, for other reasons, choose not to take part.

How much of a part did the kick-start play in KiwiSaver's success? It's hard to be sure. KiwiSaver Mark 1 was the lead item in Michael Cullen's 2005 Budget. At the time, the kick-start was the planned big incentive to join. There were some modest administrative subsidies to lower management fees but that was it. As a Treasury hack at the time, I recall us guessing that 25 per cent of employees would enroll within five years. Of course, KiwiSaver Mark 1 never saw the light of day.

By the time the scheme was up and running in 2007, member and employer tax credits were a part of the package and amount to a much bigger incentive.

The kick-start mattered. Especially to the young. My own daughter became a KiwiSaver early in life for that very reason.

So, the kick-start was important. Taking it away now raises the prospect that tomorrow's savers, including the 300,000 in-need children benefiting from yesterday's child hardship package, will be discouraged from saving. This part of the Budget isn't one for the young. At a time of Generation Rent, spiralling house prices, irrecoverable student loans and the like, is the shift fair or justified?

At yesterday's Budget lock-up, English was asked when he decided to boot the kick-start into touch.

Was it when he found the 2015/16 surplus in danger of vanishing into the same place as this year's?

We'll have to wait for the traditional mass release of Budget papers to answer that one. But one aspect of his response intrigued me. The Government has long talked of auto-enrolment of everyone not currently in KiwiSaver as an option once its books are back in surplus. Removing the kick-start makes that a whole lot more affordable, he remarked.

Finally, confidence in any long-term savings scheme depends on a belief that the rules will be around for the long term. Every time the Government changes the rules - and this isn't the first time - that belief becomes a little harder to maintain.

• David Snell is an executive director at EY and a former manager at the New Zealand Treasury