The Government is telling both employers and employees to put more money into KiwiSaver to help increase savings, while it halves its tax credit support and taxes compulsory employer contributions that had been exempt.
The $1000 kick-start stays, but the value of the member tax credit halves to $521 from $1040 from the year to June 30, 2012 and beyond.
From April 1, 2013 the minimum employee contribution rate rises to 3 percent from 2 percent and the compulsory employer contribution rate also rises the same amount to 3 percent. The compulsory employer contributions were not taxed in the past but in future they will be taxed at the emplopyees' marginal tax rate.
"We believe most people will find 3 percent affordable,'' Finance Minister Bill English and Revenue Minister Peter Dunne said.
There is no move to make the scheme compulsory - employees can still opt out - but a consultation is planned on an exercise to get more people to join.
KiwiSaver has been more successful than Treasury predicted and this increased its cost to government to $1 billion a year. The Government says it makes no sense for it to borrow money to help people save and the changes announced today will help the Government's accounts return to surplus sooner.
Ahead of the Budget credit rating agency Standard & Poor's said measures to improve national savings were one of the things it was looking for in the Budget.
"KiwiSaver funds will continue to accumulate rapidly,'' the ministers said. They said increasing private contributions to KiwiSaver will help national savings.
Total funds in KiwiSaver should grow to $60 billion in ten years.
