KiwiSaver tinkering adds compliance costs to business

The compliance costs for businesses of administering KiwiSaver contributions continue to mount with each change to the scheme, says Deloitte tax partner Greg Haddon.

Thursday, May 19th 2011, 2:46PM

Changes to KiwiSaver announced in the Budget today include removing the tax exemption for employer contributions, halving the Member Tax Credit and upping minimum contribution rates from 2% to 3%, which will save the Government $2.6 billion over the next four years.

Haddon says there have now effectively been so many different versions of KiwiSaver since the scheme was introduced and it risks becoming the political football that gets a kick-around every election year Budget.

"The continual tinkering will make it more and more confusing for both employers and employees, and potentially act as a disincentive to join the scheme," he says.

While the changes are unavoidable from an economic perspective, with nearly half of all KiwiSaver funds currently coming from the Government through subsidies and tax breaks, businesses need to have some certainly about the future of the scheme. 

"The Government's predicament is that by borrowing to fund KiwiSaver, there is no real increase in national savings - the Government's debt acquired as a result of borrowing the funds cancels out the impact of savings through KiwiSaver."

The Government's hand was forced partly because of the scheme's success.  KiwiSaver now has nearly 1.7 million members, and is gaining about 20,000 new members a month - far more than expected when the scheme was introduced.  The enrolment rates may be further bolstered with the Government to consider whether a one-off enrolment exercise should be undertaken by employers.

"Behind the political rhetoric though, KiwiSaver needs to evolve into becoming a key part of New Zealand's personal savings pool and not simply a deferral mechanism akin to the New Zealand Superannuation Fund.

"As an economy we must increase our levels of savings in New Zealand's productive sector, and we simply can't expect that the vast majority of this should come from central Government."

"So long live KiwiSaver. Perhaps we might see some bold politics in the future that will see it as a compulsory part of New Zealanders' lives."

Source: Deloitte

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