KEY POINTS:
Michael Cullen's yellow Lamborghini - the one he admits to salivating over - is getting a lot closer now after his Budget skewed the KiwiSaver tax cuts trade-off in favour of employees.
Well-paid employees like cabinet ministers, company executives, the legions of public servants cluttering up Wellington cafes - and all those who have enough spare cash washing around to fling into a KiwiSaver account - will do well as they take advantage of the implicit tax breaks they will pocket by tucking away 4 per cent of their income into a new range of piggy banks.
Particularly once their employers are compelled to match them dollar for dollar up to 4 per cent of wage or salary levels.
I'm sure the Finance Minister did not set out to create a new employee super-class.
But those poorer Labour voters - who are already finding it difficult to make ends meet as they pay the usurious mortgage interest rates the Reserve Bank has fuelled in retaliation for the Government's spending profligacy - just won't have enough over to take advantage of KiwiSaver.
Cullen has thrown in a money-go-round which will allow the struggling to divert half of their 4 per cent minimum KiwiSaver contribution to meet mortgage commitments.
But the upshot is still desperately unfair.
I'm sure he did not intend this outcome when he decided to shift gear earlier this year and move away from the "neutral" tax policies that the fourth Labour Government introduced in the mid-1980s in favour of using tax to incentivise behavioural shifts.
Cullen argued the toss plenty of times with Treasury officials - as he reminded business chiefs in Wellington over lunch yesterday - when he pointed out that mandarins had previously been sceptical of the need for policy interventions to correct the country's abysmal savings performance.
They had urged a "wait-and-see" response in 2003. Cullen waited and saw household savings continue to fall and decided to do something about it.
The problem is that the less-well paid members of our society - who just might become John Key's voting catchment if the Finance Minister is not careful - are now disadvantaged by the way the scheme is constructed.
He's offered a maximum $1040 annual tax credit to those investing in KiwiSaver. But the tax credit has to be put into the KiwiSaver account and can't be used against the saver's contribution. The middle-class - who have more disposable income - will get it.
But if the Finance Minister had taken another route - such as making KiwiSaver contributions tax deductible up to a specified threshold - less well-paid people would have a bigger incentive to save as they would pick up a tax rebate later on.
Surely it would be a simple matter to divert that $1040 tax credit into their pockets - instead of their KiwiSaver account - to get the savings habit entrenched?
But I suspect that looks too inflationary for the Finance Minister to contemplate. He's also entrenched the business underclass.
Don't choke, Dr Cullen but the KiwiSaver scheme is blatantly unfair to self-employed, the sole traders and professionals such as accountants, lawyers and doctors who operate as partnerships rather than through limited liability companies.
They will not be able to offset any KiwiSaver contributions forced on them by their employees against the upcoming reduction in corporate rates.
They are disadvantaged in another way.
If a self-employed person on $50,000 puts $2000 in their KiwiSaver account - they will get a $1040 tax credit. But these people dip out on the tax free $2000 employer contribution that is available to wage and salary earners.
The Finance Minister could remedy this deficiency by extending tax benefits so that self-employed who contributed 8 per cent of their overall income to KiwiSaver were on the same basis as the employees with their four plus four overall contribution.
Peter Dunne must also be spewing over the way that Cullen has neatly recaptured a significant slice of the corporate tax cuts by compelling employers to put cash into their employees' Kiwisaver accounts.
For months, Dunne has been crowing about the upcoming tax bonanza that business would pocket as a result of concessions he extracted from Labour as part of the support deal United Future negotiated after the 2005 election.
But sticking employers with a Government fait accompli over KiwiSaver does not gel with the exacting consultation the Revenue Minister had insisted take place before Budget decisions were unveiled.
The problem for Dunne is that while Cullen sacrificed the Revenue portfolio to him when he became a minister outside the cabinet, the real power is still wielded by the Finance Minister and his Labour colleagues at the Cabinet table.
It's not too late to remedy these deficiencies in the Budget - so that a principled outcome is established.
If Cullen and Dunne can ensure the scheme is made more fair, future generations of New Zealanders will thank them.
