Securing Your Future: budget savings package

"The Securing Your Future package will make it easier for people to develop a long-term savings habit. It will also help many purchase their first home."

Estimated to cost $588 million over the next four years, components include:

• KiwiSaver, a government-sponsored work-based savings scheme, including features to assist first home purchase;
• a substantial expansion of the Mortgage Insurance Scheme and;
• education programmes for financial literacy and home buyers.

KiwiSaver will be a voluntary scheme, enabling people to put 4% or 8% of their gross salary automatically into a savings fund. Savers will have personalised accounts they can take with them as they shift jobs.

"The government will kick-start each person’s account with a contribution of $1000," Dr Cullen said. "It will also pay part of the fund management fees, increasing the return that people get on their investment."

To make participation easy, new employees will be automatically enrolled in KiwiSaver and have three weeks to decide whether to remain members. Existing employees, the self-employed and beneficiaries will be able to opt in.

"Policy design for KiwiSaver is well-advanced," Dr Cullen said. "We expect to introduce legislation to the House toward the end of this year and see it passed next year, enabling KiwiSaver to open on 1 April 2007."

Dr Cullen said the government aimed to lift New Zealand’s household savings rates, which are among the lowest in the OECD.

"Low savings and a high external debt to GDP ratio put pressure on our current account balance. This makes New Zealand vulnerable to shifts in the availability and price of international capital, and adds a premium to our interest rates.

"Increasing our pool of domestic savings should lessen our exposure to these risks. It could also strengthen the flow of finance to New Zealand businesses, given that investors tend to prefer to invest in their home market.

"Savings also benefit the individual, conferring a greater sense of financial security in both work and retirement."

Dr Cullen said that although KiwiSaver's main purpose was to help people save for their retirement, first home buyers would be able to withdraw their funds for a deposit on a house. They would then be able to divert their fund payments into repaying their mortgage.

"When people have been KiwiSaver members for at least three years and are ready to buy their first home, the government will help with their deposit. They will receive $1000 for each year's membership in KiwiSaver, up to a maximum of $5000.

"Our estimates are that KiwiSaver will enable around 3000 households a year to realise the dream of owning their own home," Dr Cullen said.

The budget also contains measures to expand the Housing New Zealand Corporation's Mortgage Insurance Scheme, which helps people who can support a mortgage but can raise little or no deposit. Within three years, loans under the scheme are expected to increase from fewer than 1000 a year to 5000 a year.

"Home ownership has been declining, and New Zealand will be better off if we can reverse this," Dr Cullen said. "The security of home ownership is linked with better health and educational achievement and a stronger sense of community. Ownership helps people participate in society, giving a sense of control and independence."

Education programmes for financial literacy and home buyers will be developed over the coming year, giving New Zealanders more opportunities to pick up knowledge that helps them save and invest successfully.

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