Key signals Budget KiwiSaver cuts
The Government is giving less and asking for more from workers and their employers in changes to the KiwiSaver scheme announced by Prime Minister John Key today.
In a speech at Wellington's Amora Hotel this afternoon, Key confirmed there would be changes to KiwiSaver, Working for Families and interest-free student loans in the budget next week.
He staked all of the changes on the November election, however, saying that none will come in to force unless National is re-elected.
''People will have the opportunity to decide whether a responsible approach to balancing the books and building growth is one they want to support,'' Key said.
It was clear, he said, that ''the high costs'' of KiwiSaver, Working for Families and interest-free student loans were unaffordable in the longer term.
''The changes we will make in the Budget will ensure they are more enduring and sustainable.''
The three schemes targeted for cuts 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.''
Key did not go into a lot of detail about the cuts, but he confirmed that less would go in to KiwiSaver accounts from tax credits and more would go in from both individuals and employers.
The $1000 kick-start for new KiwiSaver members would remain in place.
"The changes to KiwiSaver won't happen immediately, and this will give people and businesses time to adjust," Key said.
"Increased contributions from people and businesses will happen at a time when the economy will have well and truly recovered, and both wages and employment will be increasing."
Working for Families would also become ''a little less generous to families higher up the scale''.
"We will do this gradually, in a way that minimises the impact on families," Key said.
The student loan scheme would also be ''adjusted'' but would remain interest-free.
''The changes we are making in the Budget will make all of these programmes more affordable and ensure they survive into the future,'' Key said.
It would not be a ''slash and burn'' Budget, but would ''balance a number of the Government's aims''.
Labour leader Phil Goff has slammed the government's KiwiSaver changes, saying they would penalise low and middle income earners the most.
''This is going to fall heavily on low and middle income earners...why don't they start with people who got those fabulous tax cuts. The thousand dollars a week that they gave to every body earning $ 1 million a year,'' he said.
But when asked if Labour would reverse the changes, Goff would not commit to it doing so.
''With a $16 billion deficit it's going to be hard, in fact impossible, to restore all those cuts at once. We've got to prioritise but we'll prioritise making sure it's fair to low and middle income earners.''
Key said that the Government had put in nearly half of all the money that had built up in KiwiSaver accounts.
''But that does not constitute real savings,'' he said.
''Because the Government has to borrow to raise it, and the debt on one hand simply cancels out the saving on the other.
''It's a bit like someone going to Westpac to borrow some money then taking it to ANZ to put in their savings account. It's easy to see that this is not real savings.''
The Government currently contributes $20 a week to KiwiSaver accounts, but that is set come down over time. Key would not say by how much.
The decreased contribution from the Government would be compensated with increased contributions from individuals and employers.
''The advice we have had from officials ... is that they will result in a modest improvement in the rate of national savings,'' Key said.
As a result, New Zealand's net international liabilities would reduce by an estimated two per cent of GDP over the next decade.
WORKING FOR FAMILIES CUTS
Key said that ''over time'' the amount spent on Working for Families would ''slightly reduce''.
Higher income earners would get less and a greater proportion of the spend would go on ''the most vulnerable families''.
''The changes will be phased in over the best part of a decade and in fact most families will see increases in their Working for Families payments over this time,'' Key said.
Spending on Working for Families had gone up ''for the sake of politics'' since the 2005 election to cost almost $2.8 billion - roughly twice what they cost in 2005/06.
STUDENT LOAN CUTS
Tertiary Education Minister Steven Joyce has already signalled it will be harder for over-55s and people re-applying for a student loan to get more debt from the Government.
He also indicated a more aggressive approach to getting back unpaid student debt from graduates living overseas.
Key said student loans would remain interest-free but there would be more changes to tighten the scheme in the Budget next week.
''We need to ensure borrowers understand that when they choose to access the loan scheme they are also taking on all the responsibilities that come with it,'' Key said.
New figures yesterday showed Government borrowing has hit a new high of $380 million a week.
Finance Minister Bill English said the deficit this year would be the worst in New Zealand's history, at more than $16 billion.
The red ink was driven by the slow recovery, the Christchurch earthquake and associated one-off costs.
"However you measure, it will be somewhere around $15b to $17b, we've been borrowing a bit more than that to try and keep ahead of the game."
Treasury said yesterday the Budget deficit for the nine months to the end of March was running at $10.2b against a forecast $8.9b. But the deficit after gains and losses on investments fell to $3.3b from a forecast $7.2b because of gains by the Superannuation Fund and ACC.
Strong investor demand for Government debt had seen it borrow a record $2.8b in March, pushing gross debt to $66.7b.
The Government would borrow $20b this year. That is more than needed, but Key said the Government was taking advantage of favourable market conditions.
"On a weekly basis, that averages out to new debt of $380m a week. That ... increase in debt is absolutely unaffordable," he said.
The Budget deficit was worrying, but people would understand it was largely because of the Christchurch earthquake. The EQC's $1.5b added to the deficit.
"I think when people see the Budget on May 19 they'll realise Government is actually making great steps towards getting back to surplus and getting the books back in order."
As well as cuts to KiwiSaver, student loans and Working for Families, it is understood the Government has also pressed departments for significant cuts to capital spending plans.
English said the Budget would show great steps towards returning the accounts to surplus.
"I think that will be one of the good news parts of the Budget."