John Armstrong: KiwiSaver sugar hard to swallow

Prime Minister John Key has confirmed that Kiwisaver's member Tax credit will be cut. Photo / Mark Mitchell

No matter how much the Prime Minister sugar-coats the latest changes to KiwiSaver, some people in the retirement savings scheme will find the slashing of the Government contribution difficult to digest.

John Key's pre-Budget speech came soaked in treacle. Necessarily so. Altering KiwiSaver's fundamentals is high-wire stuff - the scheme manages the hard-earned savings of about 1.7 million New Zealanders.

Thus the Prime Minister's repeated assurances that nothing will change this side of the November election. Even then - presuming National is re-elected - the changes will be introduced gradually and subject to economic circumstances.

In a variation of the old adage of "destroying the village to save it", Key argued that KiwiSaver's popularity had made it unaffordable.

Trimming the $20-a-week tax credit (he did not say by how much) and upping the employee and employer contributions (again, he would not say by how much) was necessary to ensure the scheme was there for the long haul. He did not want New Zealanders wondering from year to year whether it might be axed.

But they might well wonder. National has never warmed to KiwiSaver, a legacy of the Labour Government. The scheme has yet to celebrate its fourth birthday and National has twice changed its ground rules.

Judgment on yesterday's announcement must await next Thursday's Budget.

Bill English has long declared that boosting savings will be at the heart of his third Budget. Key's announcement was hardly in accord with that.

But yesterday was all about getting the bad news out in advance of the big day next week. Then the savings sweeteners will be revealed.

When it comes to KiwiSaver, it is understood the new rates for employees and employers will increase the value of KiwiSaver accounts.

The big question is how many people on lower incomes will be forced to opt for a contribution "holiday" because they cannot afford a higher employee rate.

National thinks few people will quibble about employers contributing more. Never mind that it is u-turning on its reduction of the minimum contribution from 4 per cent to 2 per cent which was done to help recession-hit businesses just after the party came to office.

However, National's Budget priority now is to produce a robust set of Government accounts that flag a credible path from the current mammoth fiscal deficit back to healthy surplus.

The $880 million budgeted for KiwiSaver tax credits was ripe for the picking when it came to finding savings.

At least voters cannot say they have not been warned.