Workers face lower wage
increases in future as the Government moves to get employers
to increase their KiwiSaver contributions for their employees
from April 1, 2013.
From that date, the contribution rates for both employees and
employers will increase from the present 2% to 3%.
Polson Higgs taxation partner Michael Turner last night said
that was a significant concern for employers who did not have
a lot of cash to throw around.
Also, Finance Minister Bill English announced in yesterday's
Budget that the employer contribution would be taxed from
July 1, adding another layer of compliance costs.
"This is the biggest tax issue in the Budget," Mr Turner
"Unless the economic environment improves before 2013,
employers will be looking at wage offers. Instead of a 3%
wage rise, employees may face a 2% rise because of the higher
Forsyth Barr superannuation specialist Damian Foster said it
was disappointing to see the tax-free status removed from the
employer contributions but it was encouraging to see the
minimum savings rates increase to 3%.
"We're still a long way off competing with the 9% Australia
offers, but this is a step in the right direction and likely
to pave the way for further increases in years to come.
"I can't see it staying at just 3% for too much longer," he
Deloitte tax partner Peter Truman said the announcement on
KiwiSaver was deceptive and not the benefit it appeared at
The increase in employer subsidy would not result in any more
money going into the employee account from the employer, as
the employer contributions would be taxed.
The burden of the increase fell on employers who used staff
as their resource in the productive economy. If a business
used machines, not staff, to make its money, it would be
better off than a worker-intensive business.
He also predicted reduced wage increases.
"It's another cost loaded on a sector of employers who are
already under significant financial change. It's a bit like a
targeted tax on businesses that employ staff to operate their
business," he said.
Revenue Minister Peter Dunne said the changes ensured
KiwiSaver remained an attractive and subsidised savings
option that was financially sustainable into the future.
"We believe most people will find 3% affordable and the
employer and Government contributions, alongside the $1000
kick-start payment, will continue to offer a very attractive
rate of return for the money employees put in themselves."
The changes to KiwiSaver would save $2.6 billion over four
years, he said.
Taxing employer contributions to KiwiSaver at the employee's
marginal tax rate made sense.
About half of the benefit of the present arrangements went to
the top 15% of income earners, who got a larger tax break
because of their higher marginal income-tax rate, Mr Dunne
Massey University Associate Prof Jane Parker said the changes
would make KiwiSaver unaffordable to many low-income earners,
and women in particular.
The higher level of worker contributions might put people off
paying into the scheme.
"It will be the low- to middle-income earners who bear the
brunt of this, and these include women, Maori and Pacific
• $1000 kick-start remains.
• Compulsory contributions increase to 3%.
• Employer contributions taxed.
• Government saves $2.6 billion over four years.
• Wage offers will be at risk.