National savings to get a lift, not a hit - English

Bil English says the budget will focus around lifting national savings and that the Government was satisfied with its direction. Photo / Mark Mitchell

National savings will get a boost despite cuts to KiwiSaver in Thursday's budget, as New Zealanders are saving more now than ever, Finance Minister Bill English says.

Prime Minister John Key last week announced KiwiSaver would be trimmed in the budget because it was costing too much and wasn't sustainable in tough economic times.

Among the changes would be a reduction in the KiwiSaver tax credit, worth about $20 a month, to be made up by higher contributions from members and employers.

But Standard & Poor's today told Radio New Zealand cuts to KiwiSaver had the potential to pull New Zealand further into debt.

Analyst Kyran Curry said the changes needed to be within a package aimed at increasing national savings overall.

Mr English today said he didn't share the rating agency's concerns. The budget would focus around lifting national savings and the Government was satisfied with its direction.

"I think the whole package is what matters and they'll get to see the whole package on Thursday."

Mr English said New Zealanders were saving more now than they had 20 years ago.

"I don't think that's a product of Government incentives or schemes. I think it's a shift in their mindset which is positive for their households, and their families."

Labour leader Phil Goff said he was "really worried" following Standard & Poor's comments.

"What has the Government done? It's now reversing its reversal of two and a half years ago.

"First of all they cut down the amount of money that the employer and the employee would be putting in, and now they're talking about putting it up having wasted two and a half years.

"They really don't know where they're going."

The National Government reduced compulsory contribution from 2 to 4 per cent when it came into office, and Mr Key today said it was because of the economic environment at the time.

"What KiwiSavers out there feel is that the contract with them has been broken, and it's been broken unilaterally by Government alone, and that discourages confidence among potential future KiwiSavers," Mr Goff said.

"Why would they go into a scheme if the Government changed its mind every second day and changed the conditions in a scheme that they will effectively be locked into?"

But Mr English said the credibility of the scheme would not be damaged with New Zealanders ending up with a scheme they had not signed up for.

"The fact is KiwiSaver was put together at a time when the Government had very large surpluses, not it doesn't have large surpluses. The Government has to get their overdraft under control.

"New Zealanders have realised that too much debt is not a good thing. That more savings gives them a greater sense of security. KiwiSaver is one vehicle for that."

Mr Key today also dismissed Standard & Poor's comments.

He said: "Kyran Curry is a bright boy so I'm sure he can work out that if the Government actually stops to dis-save and the private sector starts saving that increases national savings".

Mr Key said the changes would be a minor adjustment, but it would increase savings overtime.

"We are giving New Zealanders some chance to ease their way into a slightly larger contribution."

People tended to keep their commitments at whatever level they joined, he said.

"Once people are in they don't tend to pull out. I don't think the changes will make a dramatic (difference). I think they will lift national savings," he said.

- NZPA