The savings gap between New Zealand and Australia was sure to widen further no matter what incentives the Government removed from KiwiSaver, superannuation specialist Damian Foster said yesterday.
Prime Minister John Key is expected to make some pre-Budget announcements today addressing potentially unpopular changes to the highly popular KiwiSaver scheme.
Mr Foster, from Forsyth Barr, said the most likely scenario was the withdrawal of the dollar-for-dollar member tax credit, up to $1043 a year, which was where most of the $922.5 million cost came for the Government.
The $1000 kick-start and the up to $5000 contribution for a first home were one-off payments and unlikely to cost the Government much in the overall scheme, he said.
But the Government budgeted $800 million for member tax credit payments in the 2010-11 year, which was a significant target for cost-cutters.
Mr Foster suggested the Government could means test the tax credit up to a certain income level, or scale it.
But no matter how the changes were treated, New Zealand's saving rates would fall behind Australia.
In Australia, there was a compulsory employer contribution of 9%, compared with 2% in New Zealand. There was also a means-tested government contribution in Australia.
Cutting a third of the incentives meant less reason for people to save, he said.
If the Government was too harsh, current KiwiSaver members were likely to take a permanent contribution holiday and non-members were unlikely to join. Members could take a five-year contribution holiday, which could roll over forever.
"People need an incentive to lock funds away for a long time. If there are no incentives, they will put their money where it is more accessible.
"KiwiSaver contributors can't vote with their feet, as they can't leave the scheme, but they can vote with their dollars and take their money elsewhere," he said.
Asked about the message the Government was sending by tinkering with KiwiSaver, Mr Foster said Mr Key was in a difficult position.
While savers looked at their personal circumstances, the Government was dealing with a growing debt at a national level.
However, the Government did need to be careful about the message it sent. If there was any signal that personal savings were not regarded as important, people would switch their priorities.
KiwiSaver had become hugely successful and major changes to the scheme raised the risk of people stopping saving, he said.
Council of Trade Unions economist Bill Rosenberg said the member tax credit had encouraged people to put their savings into KiwiSaver.
"The Government last year gave $14.3 billion worth of tax cuts over four years, mainly to those on high incomes, and now it appears poised to cut the level of support to help New Zealanders save.
"These are the wrong priorities which have created a structural problem for balancing the Government's books while sending a poor message about people's savings habits," he said.
PSA national secretary Richard Wagstaff said there had been suggestions public-service employer contributions would in the future be paid directly out of departmental budgets. At present, they were administered through a centralised fund.
"Government departments are already stretched. This move would add more pressure and the impact would result in loss to services and jobs," he said.
KiwiSaver had been successful in encouraging people to save. The Government had said saving was good for the country but cuts and changes to the way contributions were paid to the scheme flew in the face of that.
Cuts to KiwiSaver would be further evidence the Government had no interest in helping normal working New Zealanders, Mr Wagstaff said.
