Govt's KiwiSaver cut will kick in earlier than election

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The Government claims the changes in KiwiSaver passed into law after last week's Budget will have no impact until after the election. We investigate.

Prime Minister John Key maintained at his post-Cabinet press conference on Monday that the changes to KiwiSaver would have no "impact" until after the election.

He was being questioned on the Budget decision to halve the Government's contribution to KiwiSaver from the previous maximum of $1042.86 a year to $521.43.

He would not confirm that the lower rate applies from July this year.

The payments are made annually, as Mr Key correctly said yesterday.

But he also said: "We pay the 2011 payments in July of 2011."

In fact, the payments apply to financial years, not calendar years.

And the payment of about $1.1 billion in July this year will be the Government's contribution for the July 2010 to June 2011 year.

The new lower rate applies from July 2011 - though payment for it will not be made until July 2012.

Therefore the Government payments made to KiwiSaver accounts in July 2012 will be a retrospective payment for the previous year, July 2011 to June 2012, at the lower rate - if National is returned to Government at the November election. It will total about $650 million.

The fact that the new rate applies from July this year is confirmed in the Taxation (Annual Rates and Budget Measures) Bill passed under urgency in Parliament after last week's Budget.

Part 2, clause 7 (4) says the clauses relating to the reduced tax credit of $521.43 "apply for calculating a tax credit for the year starting on 1 July 2011 and later years".

So the first payment of Government contribution under the new rate will not be made until 2012, but the new rate applies from July 2011.