Prime Minister John Key was yesterday accused of scaremongering in indicating changes to policies dear to the hearts of many New Zealanders.
In a pre-Budget speech in Wellington, Mr Key indicated the Budget would contain changes to KiwiSaver, Working for Families and interest-free student loans - programmes which collectively cost almost $5 billion a year.
"These programmes were introduced during a debt and consumption-driven economic bubble and it is clear that they are unaffordable," he said.
Craigs Investment Partners broker Chris Timms said Mr Key was painting the worst possible picture in the lead-up to the Budget on May 19.
"The devil will be in the detail, but at the moment everyone will be jumping to the worst possible conclusion."
The prime minister had been vague about timetables and schedules and had given himself room to move on making some things appear more palatable later, Mr Timms said.
However, any decision to reduce or remove the member tax credit worth $1043 a year to KiwiSaver members was disappointing.
The self-employed, beneficiaries and stay-at-home parents were at present able to put in $1000 a year and receive the tax credit.
"Under this scenario, that will go out the window. When they take something away like this, it is bloody hard to get it back. Generally, you don't," he said.
It was clear that more onus would be put on individuals and employers to contribute to KiwiSaver as the Government withdrew its financial support.
People would inevitably remember back to when a previous Rob Muldoon-led National administration in 1976 cancelled the compulsory superannuation scheme introduced by the Norman Kirk-led Labour government. That scheme, had it lasted, would be worth about $240 billion today.
"People have long memories and in the end, it comes down to trust. The good thing about KiwiSaver is that your money is intact. We are told it is good to save and we need to save more but we find that one incentive to do that has been adjusted, moved or changed," Mr Timms said.
Mr Key said that at present, more than a $1 billion a year of what went into KiwiSaver accounts came from the Government through subsidies and tax breaks.
Over time, the Government had put in nearly half the money that had built up in KiwiSaver accounts.
"But that does not constitute real savings. That's because the Government has to borrow to raise it and the debt on one hand simply cancels out the saving on the other.
"At the moment, the Government contributions to KiwiSaver make no difference to the level of national savings."
The changes to KiwiSaver would not happen immediately and that would give people and businesses time to adjust, he said.
Increased contributions from people and businesses would happen at a time when the economy had "well and truly recovered" and both wages and employment were increasing.
After the Budget changes, total KiwiSaver funds were projected to rise from about $8 billon at present to about $25 billion by 2015 and to nearly $60 billion in 10 years, Mr Key said.
"The advice we have had from officials, who have modelled the effect of the Budget changes, is that they will result in a modest improvement in the rate of national savings."
As a result of the KiwiSaver changes alone, New Zealand's net international liabilities - the amount the country owed to foreign lenders - would reduce by an estimated 2% of gross domestic product over the next decade, he said.
