KEY POINTS:
Treasury officials have always maintained that tax incentives represent the best chance for a healthy uptake of Kiwisaver, the Government's soon-to-start voluntary workplace saving scheme. It is not a view the Minister of Finance has been keen to embrace. Pleasingly, however, he seems to be modifying his opinion, and the scheme stands to be the beneficiary of the significant step towards savings incentives and compulsory savings in the May 17 Budget alluded to recently by Winston Peters.
The New Zealand First leader's comment has been widely interpreted as a pointer to the unveiling of tax concessions tied to deposits in the Kiwisaver scheme. It has been suggested across-the-board cuts of perhaps $10 a week could be paid directly into Kiwisaver accounts. Alternatively, and more probably, contributions could be tax-free, or at least partly tax deductible. Either would help Kiwisaver generate a welcome momentum.
So far, the signs are not auspicious. A Herald-DigiPoll survey in February found that more than two-thirds of its sample did not belong to a retirement savings scheme. Of them, less than a quarter planned to join Kiwisaver when it starts in July. Such figures tallied with Michael Cullen's tepid expectations for the scheme when it was announced as the centrepiece of the 2005 Budget. Shorn of sweeteners, it was touted to attract only 265,000 account-holders by next year.
At that time, Dr Cullen seemed unconvinced about the impact of a tax incentive, and intent on protecting the tax base. Fortunately, his attitude seems to have moderated, perhaps in recognition of the scheme's potential to lift New Zealanders' lamentable level of savings, bolster domestic investment, and aid first-home buyers. The first indication of this was the announcement last August that employers' Kiwisaver contributions would be tax-free to a maximum of 4 per cent of pay. That gave employers and, in turn, employees, more reason to embrace the scheme.
Now, Mr Peters has hinted there will be an even more emphatic motive for workers to become involved. He, of course, as the orchestrator of a compulsory superannuation scheme resoundingly defeated in a 1997 referendum, has particularly good reason to welcome this. People objected then to both the idea of compulsion and the inclusion of individual accounts. Now, however, according to the Herald-DigiPoll survey, almost two-thirds believe saving for retirement should be compulsory. Tax concessions tied to Kiwisaver accounts would go quite some way down that path. It is not something the "smart" wage and salary earners referred to by Mr Peters would turn down.
Hopefully, his comment has been interpreted correctly. Those with the means should be providing for their retirement. Better still, tax incentives tied to Kiwisaver offer a means of providing a cut without having to gauge the economic cycle correctly to guarantee the desired impact or risk encouraging inflation. This would be money put towards implanting a savings culture, and a healthier economy, not splurged on consumer goods.
The Government, understandably, is staying mum on Mr Peters' hint. It has had more than enough strife with Budget leaks. But it should be bold. Popular opposition to compulsory superannuation has reduced markedly, while the need to stimulate saving and help first-home buyers through a vehicle such as Kiwisaver has increased at a comparable rate. A high participation rate in the scheme is essential. If a tax incentive achieved that, it would be money well spent.
