The Government has confirmed it will axe the annual $40 fee subsidy it puts into KiwiSaver accounts to help pay for a better deal for low income workers.
Finance Minister Bill English today released the Government's KiwiSaver and tax packages that are to be included in the Taxation (Urgent Measures and Annual Rates) Bill to be passed in Parliament this week.
Under changes it announced before the election, contributions to KiwiSaver will be lowered to 2 percent of the weekly wage, matched by the Government.
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.
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.
"The Government has decided to abolish the member fee subsidy of $40 per year to help manage the cost of this decision," Mr English said.
The total combined tax cuts package and KiwiSaver changes would now cost $22 million over five years, he said.
The main changes to KiwiSaver after final decisions are:
* The minimum member contribution rate will reduce from 4 percent to 2 percent, and 2 percent will be the default contribution rate for new employee members from April 1, 2009.
* The member fee subsidy will be discontinued from April 1.
* Compulsory employer contributions will be capped at 2 percent from April 1.
* The employer tax credit will be discontinued from April 1.
* The employer superannuation contribution tax exemption will be capped at the compulsory employer contribution of 2 percent from April 1. (That is equivalent to 2 percent of the employee's gross salary or wages.)
* The KiwiSaver Act will be amended to make it clear that upon joining KiwiSaver, no employee can have their gross pay reduced as a result of employer contributions. The Employer Relations Act amendment relating to KiwiSaver will then be obsolete, and will be repealed from the date of assent of the Employment Relations Amendment Bill.
* The member tax credit of up to $20 a week, the $1000 kick-start, mortgage diversion, deposit subsidy and the first-home withdrawal provisions will be retained.
