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Some KiwiSaver Contributions To Be Taxed

Contributor:
Fuseworks Media
Fuseworks Media
Bill English Pic: NZPA
Bill English Pic: NZPA

Finance Minister Bill English says no one should be surprised they will be taxed on their KiwiSaver contributions above the minimum 2 percent.

The Government yesterday detailed its changes to the savings scheme which included axing the annual $40 KiwiSaver fee subsidy but making a change to make it fairer for lower income workers.

The Government is, as promised on the election campaign, lowering contributions to 2 percent of the weekly wage, matched by the Government. Contributions over 2 percent would be taxed.

Under Labour, savers could contribute either 4 or 8 percent with a government subsidy of up to $20 a week and compulsory employer contributions, rising to 4 percent by mid 2011.

However, the changes meant those earning under $52,000 would not get near the $1040 subsidy cap before they reached 2 percent of their income, effectively reducing the incentive for those people to save.

Mr English said instead of limiting the subsidy to 2 percent of wages, there would be a dollar for dollar subsidy of up to $1040 for low and middle incomes.

Another change was removing the tax exemption for contributions over the minimum 2 percent.

The New Zealand Herald gave the example of an employee earning $60,000 a year and paying 4 percent ($2400) into KiwiSaver, and who is matched dollar for dollar by his or her employer. That person would pay 33c tax on half the contribution, almost $400 a year extra in tax.

The newspaper said Mr English's office estimated that the change would save the Government $231 million over five years.

Mr English said it campaigned on dropping the tax exemption.

"Its been available to anyone who wants to investigate what our policy is, it's inherent in the 2 percent policy," he told Radio New Zealand this morning.

"I spoke all around the country and made it quite clear what the policy was. It won't be any surprise to anyone."

The country was facing tough economic times.

"We wanted to make sure we covered the cost of increasing the member tax credit for people earning under $52,000, so there's a little bit that comes out of every KiwiSaver account and it helps us to pay the cost of a bigger incentive for lower income savers."

Labour leader Phil Goff said the downsides had not been made clear until now.

He believed his former Government's scheme should have been retained and the reduced minimum contribution would mean it was less portable between Australia and New Zealand.

The final KiwiSaver and tax packages are included in the Taxation (Urgent Measures and Annual Rates) Bill which passed its first reading under urgency last night. The Government planned to get it through all stages before Christmas.

Mr English said yesterday the combination of dropping the KiwiSaver fee subsidy and an updated costing of tax cut plans meant they were less costly.

The effect of these two changes means the net impact of the combined tax cuts package and changes to KiwiSaver would have an overall cost of just $22m over five years.

Tax cuts would go ahead as promised with movements to the tax rates and thresholds costing $6.5 billion over five years and the independent earner rebate costing $1.3 billion over the same period.

Scrapping the research and development tax credit would save $861m.

The tax changes will result in the top rate to those earning over $70,000 falling from 39 cents to 38 cents.

The 21 percent rate will be payable for those earning between $14,000 and $48,000 -- currently $40,000.

There will also be an independent earner tax credit giving $10 a week to those earning between $24,000 and $44,000 if they receive no benefits or Working for Families tax credit.

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