Govt halves contribution to workers' KiwiSavers; employers get tax cuts

Analysis: Workers will have to take responsibility for a bigger share of their own retirement savings, with the Government cutting most of its contributions, as well as opening the door for employers to negotiate a lower share.
Over the next four years, Finance Minister Nicola Willis has cut a handy $2.5 billion (roughly $620 million a year) in spending by halving the Government contribution to 0.25 percent, and stopping any contribution to high-income earners.
For most workers, this will work out as a reduction of nearly $261 a year – swallowing up round about a third of any tax cuts they received last year.
Willis defends this – she says officials recommended removing the Government contribution entirely. 'But it's my view that keeping a bit of a contribution is a little bit of juice, that means that some people, who might not otherwise contribute, will.'
At the same time, the default employee contribution, matched by their employer, will rise to 3.5 percent, and then 4 percent.
This means most workers should put away more savings – but the changes set up an arm-wrestle between employers and their staff.
Willis admits as much in her speech to Parliament: 'The Government recognises that, over time, employer contributions may effectively form part of the wage negotiation process.'
Core Crown expenses to rise in nominal terms, drop in real terms
She expects the KiwiSaver changes to slightly slow wage growth, but that will be outweighed by the benefits to business and their employees from an average $1.7b a year Investment Boost tax incentive scheme, also announced today.
Willis is not concerned that workers on low incomes might be more reluctant to maintain payments, without the Government contribution. 'The advice we received from our officials was that there is actually very little evidence that the size of the contribution influences people's decisions to go in KiwiSaver. The most influential thing is the auto enrolment and then the auto contributions.'
Already, many employers hire new staff on total remuneration packages; that is, the employee pays both their contribution and their employer's out of a total gross salary package. This means that if they want to increase their contribution to the new higher default, their contracts may require them to pay the additional employer contribution as well, all from the same gross salary.
Willis tells me the Government needs to do more work on how this will pan out. It has until April next year to figure out how the changes will be implemented, and how employers will behave.
The Government has 'very poor data' on how widespread total remuneration packages have become, and who will pay the increased employer contribution in such cases. 'That will be for employers and employees to resolve as part of their wage bargaining on a case-by-case basis,' she says.
Willis tells me she went back and read former Labour finance minister Michael Cullen's speeches about KiwiSaver, when the policy was introduced.
'At that time, he fully acknowledged that, yes, employers would meet these costs in different ways, but ultimately, the benefit for greater savings both for individual New Zealanders, for our businesses and for our economy would stack up.
'And I don't agree with Michael Cullen on everything, but I agree with him on that.'
Employers and Manufacturers Association strategy head Alan McDonald, who was in the Budget lockup with media, says the association will encourage bosses to act in good faith in pay negotiations.
He believes most will be happy to contribute the extra percentage point, because it will be good for their workers and good for the economy. 'Ultimately, most employers are good people,' he says.
But Council of Trade Unions economist Craig Renney isn't so sure. 'As Einstein said, the most powerful force in the galaxy isn't gravity, it's compound interest. And if you are taking away contributions, however small, from low-income households with the power of compound interest you're also taking away their future savings.'
He says that with the changes to pay equity, the repeal of fair pay agreements, the loss of the living wage guarantee, and now this, workers feel like they're under assault. 'I think
they've got every right to feel battered.'

Try Our AI Features

Explore what Daily8 AI can do for you:

Learn with AIFact CheckingText to SpeechAI Summary

Related Articles

RNZ News

10 hours ago

• RNZ News

Climate Minister says gas shortage will lower greenhouse emissions

Kapuni gas plant. Photo: RNZ / Robin Martin Climate Change Minister Simon Watts says the gas shortage will lower greenhouse gas emissions, but at a cost for businesses that can't switch to electricity. Supply from existing gas fields has plunged since the government published its Emissions Reduction Plan in December 2024. Watts was asked in a scrutiny hearing in front of the environment committee of MPs why the government's climate plan had put such heavy emphasis on capturing and storing carbon dioxide underground at Kapuni gas field, when the project was untested and its prospects were now looking dubious. Watts blamed the gas shortage - but said the shortage itself would lower carbon dioxide emissions. He said, compared with when the plan was written, "New Zealand has less gas than it thought". "Less gas that's available by virtue is less emissions, so in some ways there is an acceleration of the emissions reduction because we simply don't have that gas available," he said. "We are at critical levels in the context of low levels of gas. Some may say with a purely climate hat on, well that's good, there are no emissions and therefore they can't use it (gas)," Watts said. "But the reality is, in a manufacturing and industrial sense there are a number of businesses who either have an inability to transition to other sources ... or doing so is a significant fiscal cost and/or time horizon." Watts said the government was looking at ways to help those companies. "The good thing is, in the current environment there is an economic [and] commercial case to transition off gas because electricity is cheaper, and therefore the commercial imperative is driving that transition." "I'll take market intervention over government regulation any day." Watts said the government's assumptions regarding future gas use and the prospects of carbon capture at Kapuni would need to be reassessed and the results would published later this year. Carbon capture and storage (CCS) condenses carbon dioxide and stores it underground in reservoirs. Overseas, some high profile projects have been controversial because taxpayer funds for climate action were being paid to some of the planet's biggest emitters, fossil fuel companies, to capture and store just a tiny fraction of their pollution underground. Fully a third of the carbon savings needed to meet the government's legal obligations to cut emissions from 2025-2030 was supposed to come from carbon dioxide being stashed permanently underground at Taranaki's Kapuni gas field. But in May, Kapuni's owner Todd Energy told RNZ the project wasn't viable unless it received some kind of extra incentive or subsidy from the government. The scheme would earn carbon credits for every tonne of emissions stored, but Todd said the market price of carbon was too low to justify the investment. Simon Watts. Photo: RNZ / Samuel Rillstone At the scrutiny hearing, Watts was grilled by opposition MPs on whether Todd Energy had asked for direct subsidies from the government. Watts said he hadn't seen such a request, but Labour MP Deborah Russell presented him with an answer to a written question in Parliament, confirming Todd had asked for subsidies. Watts didn't directly answer Russell when she asked what the government's reply had been. He said in regards to support for industries "there's a number of aspects that remain under active consideration". Watts said the government was still committed to passing regulations allowing carbon capture and storage as "one tool in the toolbox" for lowering emissions. RNZ asked Todd to clarify what it had asked for. It said it had not asked the government for a direct subsidy for carbon capture and storage at Kapuni. But the company confirmed it wanted either co-investment, government underwriting or shared liability with the taxpayer for any future carbon leaks from the project. Todd has previously argued the government should treat carbon capture and storage facilities as infrastructure. "In our 2024 submission to MBIE (Ministry for Business Innovation and Employment) on the CCUS consultation, we did signal that government support - particularly in the form of risk-sharing or enabling mechanisms - would be essential for CCS to proceed in New Zealand," it said. "Particularly, we noted that New Zealand's declining gas reserves make the economics of CCS challenging and that 'for CCS to be effective, the government should consider sharing project risks and responsibilities. "It could be liability for leakage, particularly if the intent is to store third party CO2 in time. Due to challenging economics there is also financing risk that co-investment or a government underwrite could help to de-risk," said the company. Todd Energy had previously estimated the Kapuni field would have room for storing carbon dioxide produced by other companies, as well as its own. Earlier in the hearing, Watts was asked by National MP Grant McCallum about the risk of "emissions leakage" if New Zealand started lowering its methane emissions from farming. Emissions leakage refers to the risk of production moving overseas to get away from emissions pricing in its country of origin. Watts defended the necessity of meeting New Zealand's climate targets and international obligations. "You hear some on some corners saying, we're very small and insignificant," he said. "Every country, big or small, has a role to play in terms of reducing emissions and New Zealand is part of the Paris Agreement for that purpose. "In terms of adding up all the small and insignificant countries, it adds up to 40 per cent of global emissions," Watts said. "If we pull out, what signal does that send? There are three countries that are not part of the Paris Agreement, the USA and a number of other countries that most people probably have probably never heard of." [Those countries are Iran, Libya and Yemen . "Russia, China, India, they're all part of the Paris Agreement, and all the other countries we would look to - the only one is the US. "In regards to the implications on international trade, ... New Zealand has a reputation as a primary sector exporter of red meat, dairy and other products," he said. "Why would we put that at risk?"

Otago Daily Times

11 hours ago

• Otago Daily Times

Nearly 200 apply for 'golden visa' in three months

Nearly 200 applications have been received for the so-called 'golden visa' since changes were made to liberalise access. The government made changes in April to make it easier for wealthy foreigners to gain New Zealand residency through investment. Since then, Immigration New Zealand has received 189 applications for the visa. Economic growth minister Nicola Willis said that was significantly more than the 116 appliciations received over more than two and a half years under the previous settings. "Investor migrants are clearly attracted to New Zealand's growing reputation as a safe, pro-business, high-potential economy. In a world where countries compete for dollars and talent, it's great to see New Zealand's growth prospects being recognised," she said. The changes introduced a two-pronged approach to the visa, and liberalised what could be invested in. The Growth category requires a minimum investment of $5m over three years, into higher-risk investments including managed funds and direct investments in New Zealand businesses. The Balanced category requires a minimum investment of $10m over five years, with investors being allowed to choose lower-risk investments. Under the previous settings, $15m was required for a visa, with bonds and property investments not allowed. As at June 23rd, 100 applications have been approved in principal. Of those, seven have transferred and invested their funds in New Zealand and had been granted a visa. Five of those were invested in the Growth category, and two in the Balanced. The government said that was a total minimum investment of $45m. The new applications represented a potential $845m of new investment. Immigration minister Erica Stanford said she would have been happy with 200 applications in the first year. "As of this week we're almost at 190 after 10 weeks, and I think that shows you the level of interest from overseas, in lots of different markets we haven't seen before," she said. The strongest interest in the visa had come from the United States, China, Hong Kong, and Germany. Investors have six months to transfer their funds and start investing in New Zealand. Willis said the visa complemented the Investment Boost policy announced at the Budget, which allows businesses to deduct 20 percent of the cost of a new asset, on top of depreciation. "The Active Investor Plus delivers the capital. Investment Boost delivers the confidence to put that capital to work, and to ensure that people are making investments that will pay off in the long run."

RNZ News

12 hours ago

• RNZ News

KiwiSaver hardship withdrawals applications doubled

One of the organisations vetting KiwiSaver hardship withdrawals has said applications to dip into the retirement fund have more than doubled in the past two years. This comes as some fund managers have expressed concern about social media "how to guides" advising people to go into more debt or fudge their financials so they can crack open the retirement piggy bank early. Inland revenue figures show that in April 2025 hardship withdrawals were up $300 million on the year before. Public Trusts acts as a supervisor for various KiwiSaver schemes and decides which hardship withdrawals are signed off. General Manager of Corporate Trustee Services David Callanan spoke to Lisa Owen. To embed this content on your own webpage, cut and paste the following: See terms of use.