Third Reading
Hon Dr MICHAEL CULLEN (Minister of Finance)
: I move,
That the KiwiSaver Bill be now read a third time. This bill is a landmark in social and economic legislation in New Zealand. It is the culmination of a set of measures this Government has put in place since 1999 to put financial security in retirement within the reach of every New Zealander.
The first move was to restore the cuts made by the National Government in 1999, when it slashed the level of New Zealand superannuation, contrary to the multiparty accord on New Zealand superannuation. We restored the level to 65 percent of the average wage for married couples as the minimum rate, and that rate would be preserved into the future. Everybody thought that rate had already been secured before 1999, but National knew nothing in terms of its desperation to fund tax cuts that proved to be unaffordable.
Secondly, we moved to create the New Zealand Superannuation Fund, which provides long-term stability for the basic State pension by partially pre-funding the scheme. That fund was attacked by the National Party as being smoke and mirrors, and was specifically rejected by Dr Don Brash. The fund is now supported by the National Party; indeed, last night during the Committee stage the fund was almost claimed as its own work, in order to secure the future of New Zealand superannuation. Thirdly, we showed some leadership as an employer in providing workplace savings options by introducing the State Sector Retirements Savings Scheme, a voluntary savings scheme aimed at State sector employees.
KiwiSaver completes this foundation in terms of security in retirement by providing easy access for all employees to a long-term savings scheme. It will encourage a long-term savings culture and will provide the impetus and opportunity for New Zealanders to begin saving early and regularly for their retirement. It does not rely on compulsion; it relies on the fact that people are compulsorily enrolled in the scheme, then have to choose to exit from it. It is a relatively simple mechanism, and one we believe will work. This initiative has important implications for every employer, every employee, and every business in the savings and investment sector. It has undergone intense scrutiny through the select committee process, and elsewhere.
The Government will be supporting this scheme through meeting the cost of administration, offering a $1,000 start-up contribution to each new KiwiSaver member, and providing a capped scheme free contribution, as well as support for first-home purchasing. We will also be providing, as a response to feedback from stakeholders, a specific tax concession in relation to specified superannuation contribution withholding tax on up to 4 percent of contributions by employers—4 percent of wages. That will now be exempt from the specified superannuation contribution withholding tax in KiwiSaver schemes. The scheme’s date has been moved to 1 July next year to ensure that all procedures will be ready, and the providers will be ready to make sure it goes smoothly.
Amendments made in the Finance and Expenditure Committee mean that deductions will occur from day one. That will mean, again, that inertia will work on the side of staying in the scheme rather than exiting from the scheme, making it much less likely that new employees will miss the money that otherwise they would miss if they started paying at one rate, then had KiwiSaver occurring further down the track. New employees will be given an information pack when they start a job. Changes to the bill provide greater clarity on the information they receive. Also, changes made in the select committee have reduced compliance costs for employers, which have been a major concern for the Government and, I am sure, the House right the way through the development of the scheme.
One key feature that has remained relatively unchanged is the two standard contribution rates of 4 percent and 8 percent. The optional rate is 8 percent of income. The 8 percent contribution rate is really designed for people who are saving for their first home and for people in later life who are approaching retirement and are trying to build up greater savings in the period when they have paid down the mortgage on their property. We recognise that some would prefer 2 percent, but 2 percent is a very low level of contribution for many people and would create problems in terms of the scheme design in relation to very small balances being accumulated. But through a change in the select committee, if employers contribute 2 percent, then the employee has to contribute only 2 percent, as well, to meet the 4 percent minimum.
That change was partly the reason for the change being made to the specified superannuation contribution withholding tax, because if the specified superannuation contribution withholding tax was applied to the 2 percent employer contribution, the total contribution would not have been 4 percent; it would have been 3.33 percent because of a loss on taxation. That led to further work and thinking around the issue of a limited tax concession in relation to this.
Yesterday the bill passed its Committee stage with a relatively perfunctory examination by some members of the House. National Opposition members seemed to be obsessed with the insertion of a mortgage diversion scheme. They were obsessed with it because they did not understand it. They based their arguments on their belief that mortgage diversion could apply to all the employee’s contribution. But, as Mr Copeland pointed out to Mr Key privately yesterday, that is not the case. Only half can be diverted, and Mr Key had to admit to Mr Copeland that he had not recognised that fact, and got it wrong. That, of course, did not change the arguments the National Party continued to put forward for the rest of the day—never let the facts get in the way of an argument.
That argument reached absurdity when Mr Key said that because we were allowing some limited diversion for mortgage purposes, the next thing to happen would be for people to take their money out of the scheme for “the lawnmower man, the guy who cuts the hedges, the gardener, the housekeeper, the pool boy, and anybody else who comes to work anywhere around the house”—an army of people; an army of Cossacks. I have to tell Mr Key that the target of KiwiSaver is not people who employ a hedge cutter, a gardener, a lawnmower man, a housekeeper, and a pool boy. I tend to assume that those people are probably adequately well off and able to save for themselves without the help of a Government scheme. And when challenged as to who has pool boys, he said: “dozens of people have pool boys”. There are 4 million people in this country, and very few of them have pool boys. In fact, most people in New Zealand do not have pools, let alone pool boys. But that, I think, showed the slackness, the laziness, and the shallowness of the National Opposition arguments.
Let me take the silly argument that mortgage diversion will mean that people will lift their mortgages. Let us take a person on $50,000 a year with a $150,000 mortgage, which is by no means untypical in a New Zealand situation. At the moment the KiwiSaver contribution is $2,000 a year. People can divert $1,000 of that to paying off their mortgage. Their mortgage repayment is probably in the order of $14,000 or $15,000 a year—and Mr Key is trying to tell the country that allowing $1,000 to be diverted towards that $14,000 or $15,000 will lead the borrower to increasing the mortgage. That might be what he would do in some kind of highly leveraged financial market activity, but it is not what average non - pool boy employing Kiwis will do, faced with a desire to reduce their mortgage and set themselves up for retirement. What happens is that people with equity in their home, because they have sufficiently reduced their mortgage, do have a tendency when house prices go up to lift that mortgage to create spending power. But that is not the same thing as what National was trying to argue.
The fact is that National cannot tell us what its position is. It voted against it, then said it probably would not change it if it became the Government. Indeed, Mr Key wants to turn the scheme into a compulsory scheme. He has made it pretty clear every time the issue has been raised that he wants to do that, but he cannot convince Dr Brash that there should be a compulsory superannuation scheme. I just warn people that compulsion in Australia was accompanied by the introduction of a very strict income and assets test on the state pension. That has been the result of compulsion in Australia.
There are still many people of limited means who will depend primarily on New Zealand superannuation, and this Government stands also for a strong floor on New Zealand superannuation. The people whom Mrs Turia raised questions about in the House yesterday or the day before are people who cannot save much and for whom New Zealand superannuation will be their overwhelming retirement income. Preserving that is also important. That is why the Government restored the level of New Zealand superannuation; that is why we put in place the superannuation fund to secure the future of New Zealand superannuation. Now we are moving to address a broad range of middle-income earners in New Zealand and helping them get into lifetime retirement income savings. Again, the Government is addressing the big picture while the Opposition wallows in its day-to-day issues.
JOHN KEY (National—Helensville)
: So often our Minister of Finance lives in a state of denial, and we heard in that speech another example of the state of denial he lives in. He took the moment of his speech when he diverted from the notes written for him by Treasury to say that New Zealanders would not increase their mortgage if they had the opportunity to do so. This is the Minister of Finance who came into office in 1999, when New Zealanders owed $80 billion. Well today, I hate to tell the Minister of Finance, the debt owed by New Zealanders is $140 billion. In the last 7 years they have racked up $60 billion worth of debt, and in the last 3 years they have racked up $40 billion worth of debt. If Michael Cullen does not think that New Zealanders when they have the opportunity to increase their mortgage because they have paid some down will do so, then he lives in a world that does not understand basic banking tenets in the modern world, and he does not understand just how easy it is.
There is probably one point on which National agrees with Labour, at least in some form—that is, New Zealand does face some savings issues, in my view. I think New Zealanders do have a concentration of assets that are held mainly in their home, and unless they diversify their assets into financial assets they will inevitably have to eat their home in retirement—and many New Zealanders will. That said, the question is whether KiwiSaver will do the job.
The Government bases its entire premise at this point around the view that inertia is the reason New Zealanders do not save. In fact, there is little evidence to prove that inertia is the reason they are not saving. There are many reasons why they are not, one being that they are over-taxed, and another being that they do not earn enough. I refer to those New Zealanders who the Minister of Finance seems to claim will all of a sudden become participants in KiwiSaver. If that is to be the case, then it is rather remarkable that the Government earns around about $550 million a year from the specified superannuation contribution withholding tax, yet believes that those who undertake KiwiSaver will have a fiscal cost of only $35 million.
Something just does not add up. If so many people are going to flock to KiwiSaver, if so many people are going to use this scheme and they are genuine New Zealanders who are not saving today, then one would have expected the changes to specified superannuation contribution withholding tax, which the Minister of Finance announced a few hours before the bill was released for its second reading, would have been much greater. The truth is that the Minister of Finance knows that before he made any changes to specified superannuation contribution withholding tax, the scheme was hopelessly flawed and would never have worked.
Despite the fact that he said the Finance and Expenditure Committee had done its process, he knows, as well as I know and as well as every member on the committee knows, that, in fact, they did not do their work. In fact, we heard a great many submissions, and not one of them was about mortgage diversion, because no one had had the opportunity to discuss mortgage diversion, because even Labour members on the committee had decided that it was not a good idea. When Gordon Copeland introduced it about 30 minutes before the end of the whole session, Labour members agreed with me when I told them that I had had a look at that option around the Central Provident Fund in Singapore.
Michael Cullen knows full well that when there is mortgage diversion, a savings account is turned into a chequing account. That is a fact of life and if Michael Cullen does not know that, he had better get up to Singapore and have a look at how much is sitting in the accounts for which there is mortgage diversion. He knows as well as I know that, in fact, the number is zero. Money flushes through the account and goes out the other end.
I do believe that New Zealand has some savings issues, and in that regard he is right about one thing, and I do not entirely agree with Roger Kerr of the Business Roundtable, who says that the only issue is national savings. I personally think household savings do matter. If national savings is the only calculation that has to be worried about, the assumption always has to be that New Zealanders will be able to rely on the Government to pay for anything they want; they will not, and we know that, and there should be some behavioural changes, and we agree with that.
But there are many problems within KiwiSaver. There are many unanswered questions, and National will not be voting for it, for very good reasons. The first is that
while a workplace scheme is likely to achieve change, one of the questions that has to be asked is why the deduction or the benefit that has been given under specified superannuation contribution withholding tax is applicable only to KiwiSaver. Today we saw a press release from Jill Spooner, the vice-president of the Association of Superannuation Funds of New Zealand, who made the point—I think, quite correctly—that those New Zealanders who saved for years in the 1990s, who stuck with their workplace schemes and who loyally contributed when there was no incentive to do so, are now finding out from the Minster that they are somehow left out in the cold.
Secondly, inevitably, we will see more and more schemes become KiwiSaver-compliant. Why is this? Because they will want to have the benefit of the reduced specified superannuation contribution withholding tax. But what we will see in effect, in my view, is that many people who are saving in existing schemes will exit those schemes as they transition into a new KiwiSaver scheme. As we heard from AXA New Zealand today—interestingly enough—around about 20 to 40 percent of all money that is able to be transferred from one scheme to another never gets re-invested; that is a reasonably interesting point.
I also make a point around mortgage diversion: if it was such a good idea, and it was going to work, and provide the incentives, then why was it not introduced much earlier on? What was the magical process that occurred after the select committee had heard the submissions, and long after they had had the opportunity to listen to them? What happened that changed the Minister’s mind? What happened to the position that Michael Cullen had adopted for the better part of 10 years that savings incentives would not work in any form whatsoever? That position went out of the window as the Government scrambled to try to change KiwiSaver. They knew the architecture might have been all right, but the basic process would never have worked in any form whatsoever and they decided at the last minute that they had no option.
This is a Government with its back to the wall and facing plummeting internal poll ratings. Today, I was interested to hear someone who had seen an even more up-to-date poll by Labour. Interestingly enough, that person told me that the gap between Labour and National now is not as wide as it was on
Agenda on Saturday morning when we saw National leading Labour by 4 ½ points. But in fact the gap is even wider. We know that this is a Government that thought it could get away with stealing $882,000 to buy an election, and thought it could prop up a member of Parliament whom even its own Prime Minister does not believe in. That is the reason we have seen tax changes. Michael Cullen has written out a cheque on behalf of the people of New Zealand—a far bigger cheque than
the one Labour wrote out on behalf of the taxpayers to steal an election. It wrote out that cheque in desperation to try to get some good news. That is the reason we saw the changes. Michael Cullen knows that and he was blushing, not just his normal pinky self, when he was in front of the KiwiSaver billboard the other day; he was blushing with embarrassment. Even he had to say, when asked what had changed his mind about saving incentives: “Let’s just suck it and see.” They are hardly the words of a man of great conviction.
National will not support KiwiSaver. We do not think it will work enormously in its current form. There are many things that could have been done to make KiwiSaver work. If the Minister of Finance had not been so lazy, he could have gone and had a look at what President Bush did. He would have learnt from the US Treasury that the real thing that drives savings is the real thing that has driven their 401 (k) plans and their individual savings accounts—reduced taxation treatment on the savings of those funds. That is where the exponential grunt is, and that is the thing that has been driving great economic growth in the US, as Treasury knows. The Minister of Finance knows he has tackled the completely wrong place. He has made no difference to employers. There is no incentive on employers to encourage this scheme, and the Minister of Finance has once again—as he so often does—got it horribly wrong.
SHANE JONES (Labour)
: Kia ora, Mr Assistant Speaker. At some point in the future when there is great efflorescence, the KiwiSaver scheme and the speeches we give this afternoon will be reviewed. Unlike the previous speech from John Key, the speeches made by the Minister of Finance and the chairman of the Finance and Expenditure Committee will be regarded as very temperate accounts and very thoughtful statements as to what went into this scheme and why this legislation, the KiwiSaver Bill, is well and truly overdue.
Before I embark any further, I take this opportunity to repeat what I said earlier—that is, to pay a vote of thanks to officials from Treasury and the Ministry of Economic Development, and the formidable team from the Inland Revenue Department for the work they provided to the select committee. They answered all manner of questions from both sides of our committee, because we were dealing not only with an area where policy has been very scarce, but where there are also a host of technical, possibly elegant, solutions on an evolving basis. So I say kia kaha and thank you to those officials.
Underlying this bill is a question to which I certainly believe the answer is self-evident—that is, the fall in household savings. Various ideologists came before the select committee. I am not sure whether a number of them improved upon what the National members asked, but they were clearly of the view that household savings had not fallen. I presume they arrived at that conclusion by identifying the fact that many New Zealanders have their wealth—such as it is—tied up in houses. House prices have risen so, in a stock sense, there has been a growth in wealth dimensions. However, we on the Government side of the House believe that household savings have faltered and that this legislation, in terms of securing more reassurance for retirees, represents a very sensible step forward.
What are we actually doing? We are providing a scheme that has the additional benefit of a modest tax incentive, but it will also modify behaviour, in a positive way. That is the first thing. Secondly, it does not represent additional compliance problems. It is a savings scheme that enables people, at the point at which they sign on to a job, to begin to save. But it is not a compulsory scheme; it gives them an option of opting-out.
The extent to which employees can challenge their own inertia is really not for this House to determine—political inertia on the other side of the House, notwithstanding. It is an option that lies before the individual saver. Not only do employees have that option but they will also receive the $1,000. In addition, to overcome the flagging homeownership statistics that Mr Key has just referred to, there is an additional $5,000 available. So in that sense it is a very generous start. But like all of these things, as we no doubt go forward and celebrate a fourth, fifth, and possibly sixth term, the scheme will be capable of being refined and improved as we learn about how people actually behave under the new scheme.
I want to repeat what the Minister said, in this very temperate fashion. First, this represents a culmination; a variety of measures have been introduced and the Government has been driven to do something that the community up and down Aotearoa are looking for—that is, added security in retirement—and to ensure that New Zealanders are able to create a buffer in regard to our State pension scheme. Not only did we change and improve the “super” rate that our oldies are receiving but, earlier in the course of this Government, we created the Cullen fund. When we add those three things together it is hard to imagine what another Government could have, or has, done for a long period of time. This was an area that has remained as an outstanding issue.
We did not really hear, and I have not heard, from Mr Key or anyone else what National would do as an alternative, other than slash taxes indiscriminately and leave the vast majority of New Zealanders in “Strugglers’ Gully” possibly eking out an existence on a pension scheme, which many of them are already telling us they believe they will need more of in the future. So this scheme will do that. In respect of what it does in relation to the foundation of the economy, we really do believe that it will deepen and enhance the pool of available savings.
We have heard chapter and verse about how the Aussies have sprinted ahead because they have easier access to funding. Indeed, we had, in another context, Jenny Morel speak to us about how much easier it will be to mobilise capital, to find investors, for venture capitalists to operate, etc. Before she was rudely interrupted by someone from the other side of the House, I am sure she was on the verge of referring to the funds that will flow as a consequence of the KiwiSaver initiative, because what it is really doing is attempting to generate a change in the long-term behaviour of savers.
All long-term journeys need to start on a sure footing. Savers have been promised a great deal by the National Opposition, but—unfortunately for National—they just need to look at the 1990s, the 1980s, and the 1970s, and they are now breathing an inordinately high sigh of relief. I am sure that savers will be acclaiming the KiwiSaver scheme well into the future, once it kicks in.
The point has been made as to whether submitters had an opportunity to test their ideas fully and to engage with us. I can assure the House that a whole variety of submitters came before the select committee. A host of them had contacted the committee because they felt that their particular points were not being addressed, and every time members of the Opposition sought reassurance from the chair that individuals would have an opportunity to have their particular issue, if it warranted additional attention, teased through with the officials, never were they declined.
In relation to mortgage division, the commentary on the bill actually stated that time was passing by and that the technical challenge represented by introducing such a scheme in the very narrow window of opportunity the legislation stayed with our committee was such that we could not deal with it then, but that it did deserve further attention. Somewhere in the governmental ether a fantastic initiative has emerged, and, of course, this will have the twin effect of not only growing the available pool of savings but also improving upon the flagging homeownership rate.
In addition to homeownership we have made a point, with the passage of this bill, in terms of improving financial literacy and providing information to those who may be somewhat confused as to which direction they should go. Employers, I have no doubt in my mind, will respond positively, once they have schemes, become part of schemes, or are capable of identifying schemes for their workers that are compliant, and those employers will receive the benefit of the recent tax change.
I am very disappointed that we hear time and time again a parched and barren view about the attitudes of employers. The employers I talk to think that any scheme that grows the available level of savings that can continue to deepen and expand the productive sector of the economy, is an idea whose time has come. Anyone arguing against that is scoring cheap political points when, deep down, they know that as a consequence of us embedding this scheme, it is here for a long time to come, and great efflorescence will surround it in the future. Kia ora tātou.
CRAIG FOSS (National—Tukituki)
: I rise to speak to the third reading of the KiwiSaver Bill. First, I want to thank the members of the Finance and Expenditure Committee from both sides of the House, and the officials too. They look as fresh now as they did late last night when members were debating—or racing through—the Committee stage of the bill. Secondly, I also want to acknowledge the previous speaker’s list-ranking speech. It has been noticeable that the only Labour members speaking to the bill are list MPs. In fact, Mr Jones has been the only speaker from the Labour Party, other than the Minister in the chair at the time. Mr Jones is the chairman of the select committee and is a list MP.
In his speech Mr Jones revealed something interesting when he talked about mortgage diversion. I will come back to that issue, but I am sure he said something like: “From the dark hole, suddenly there appeared a mortgage scheme.” That says it all! That says he did not know about the provision. In the Committee stage we said, time and time again, that Mr Jones had no idea, in advance. We could probably bet dollars to doughnuts that National members knew in advance of Labour members what Mr Cullen had announced and negotiated with Mr Copeland, who is sitting over there in the corner. One day we will get to the bottom of it. Perhaps the Official Information Act requests I have put in will be quite revealing. I am looking into the time frame around the various emails between Ministers.
The bill was introduced in February. The select committee spent many, many months studying it with officials, submitters, and representatives, and, notably, when the bill was in its original form, or slightly drafted form. We spent a long time, and I thank submitters for the time they spent on it. The purpose of the bill is to try to address New Zealand’s retirement savings deficit. That is fair enough; it is a nice intention. I would like to correct the Minister of Finance. National is not voting against the intentions of the bill but against its execution and implementation, and the environment and distortions it will create. We should remember that it goes hand in hand with the taxation legislation before the Finance and Expenditure Committee right now.
We acknowledge that there is a retirement savings deficit in New Zealand, but it is only part of the problem, or perhaps it could be part of the solution. Like all good socialists Mr Cullen started out with wonderful intentions but, of course, all socialist execution is totally lousy and hopeless, as evidenced by all the other failed States behind the Iron Curtain—perhaps they are trying to resurrect one here!
In preparation for this third reading speech I looked at the first reading of the bill. In fact, I went to Mr Cullen’s introductory first reading speech, and the speech that he just gave I could have given myself because most of it was verbatim from that speech, at least the introductory part. But he raised six points. He noted that the bill has six features, so I would like to go over those again and give them a tick, a cross, or a “perhaps try harder”.
The first feature he noted was that the scheme tilts the playing field towards establishing a long-term savings habit. Well, perhaps, when it was first introduced, yes, that may have been true. But, in fact, as Mr John Key pointed out, and as members will see as we go through our speeches, that is not necessarily so. As many submitters noted, it will move savings; it will not necessarily create savings. Mr Cullen’s second point was that the bill locked in savings for use in retirement. No, that is no longer true. He went on to talk about the hardship provisions. Well, actually, the hardship provisions, etc., have been softened quite radically and we are still to see further detail. It will be interesting to see how the Inland Revenue Department will interpret those.
The third point Mr Cullen made was that KiwiSaver will provide members with choice regarding how their savings will be managed. OK, perhaps, but what he does not address is the first mover advantage around the somewhat shonky process of the default provider scheme, which is mentioned in the commentary on the bill, and on which we spoke last night. The fourth feature that Mr Cullen pointed out was that the scheme minimises compliance costs to employers, employees, and providers. Well, when Mr Cullen mentioned that, my good friend and colleague Mr Tremain almost fell out of his chair. Having been involved in many small businesses he knows exactly what it is like on the ground. I tell Mr Jones that those small businesses are private enterprises, not the public sector version.
The fifth feature Mr Cullen announced was that the bill provides prudential oversights of schemes and allows existing fund managers to join. Perhaps, OK. The jury is out on that feature. The sixth and final feature Mr Cullen noted in his first reading speech on the bill in its original form back in February was that it includes a mechanism to encourage homeownership as an important element in long-term financial security. Well, here we go, let us just look. Because as my other colleague Phil Heatley discovered today during question time, the other programmes and schemes to help homeownership that have been talked about and talked about are still on the shelf with very, very little action and loads of talk. What the bill does not address is why homes are so expensive in the first place, and on the other side of the balance sheet is the affordability or lack of affordability of houses in New Zealand.
The haste in which this bill has been introduced, pushed through, and bulldozed through Parliament, particularly in the last few days, and the haste in which the last two major amendments were brought in last Thursday, could well be its undoing. Many submitters and officials expressed a lot of concern about the tight time frame within which they are supposed to implement this bill and get their back office, etc., ready, because it makes quite fundamental changes. That was before the mortgage diversion facility and the specified superannuation contribution withholding tax exemption, as announced last Thursday, were even talked about. Everyone involved, perhaps with the exception of Mr Copeland, was under the impression that those measures would not be introduced.
This bill is being rammed through in haste to perhaps get some good headlines over the weekend to try to counter some of the appalling polling that Labour is getting at the moment. Look at the press release I have here from the Association of Superannuation Funds of New Zealand—“The KiwiSaver Bill—an SOS call”. It states that those who are on the ground in the superannuation industry are calling on the finance Minister with an SOS because its members are struggling in the wake of his announcements last Thursday that “tax concessions are to be made available in respect of certain employer contributions to KiwiSaver schemes”—that is, they have been left out in the cold. That is absolutely appalling. There are people on the ground and they are struggling. They have been in the industry for a long time, and they have been left out.
When I looked at Mr Cullen’s first reading speech there was no mention whatsoever of the policy of the mortgage diversion facility. There was no mention whatsoever of any exemption or the specified superannuation contribution withholding tax exemption scheme—none whatsoever. I almost fell off my chair when he said earlier that the Finance and Expenditure Committee had given the bill close and intense scrutiny. We did not, because we did not even know about those two quite fundamental changes to the bill.
Mr Cullen, in his first reading speech, spoke about the default provider process, and he was worried that this would be running in parallel, and he was worried about the constitutional objections. He was quite keen to point out that everything was above board. Then last Thursday he whipped out Supplementary Order Paper 52, which again fundamentally changes the scheme. KiwiSaver and the taxation legislation go hand in hand. They are supposed to create savings, but they actually create contradictions. Here is an example: a Council of Trade Unions member on $50,000 decides to invest 4 percent of that money into a new KiwiSaver scheme, and the fund invests in United States shares. Well, he will be taxed on the dividends and 85 percent of the capital gain, times his marginal tax of whatever those shares move by. Yet if he goes and invests directly, he will be taxed only on the dividends. The taxation legislation is totally contradictory to the KiwiSaver Bill. How on earth will that provide an incentive for that person to save for his future retirement?
I would just like to end with a quote from the Council of Trade Unions, which really addresses what we need with courage, boldness, vision, and perhaps even a bit of brashness as we find a vision and get New Zealand going again. The quote from the Council of Trade Unions member, whose name slips my mind at the moment, states on KiwiSaver: “It is vitally important that, in addition to employer contributions, we see a continuation of wage rises so workers are better able to afford workplace savings.” That says it all in an absolute nutshell. The problem is not savings, the problem is income and earnings. I seek leave to table the press release from the Association of Superannuation Funds of New Zealand, which sends an SOS out to the Minister of Finance to reconsider some of the changes he announced last Thursday.
The ASSISTANT SPEAKER (H V Ross Robertson): Is there any objection to that course of action being taken? There is.
R DOUG WOOLERTON (NZ First)
: New Zealand First supports the KiwiSaver scheme. We say that right upfront. In doing so I would like to congratulate the chair of the Finance and Expenditure Committee on the way in which he conducted the meetings. I give due credit to my colleagues on both sides of the table, and most of all to our officials who guided us through and helped us with the tricky bits.
Before I came to the Chamber I congratulated Mr John Key on his statesmanlike address. He was far less cheeky and far more serious today than he was last night. I congratulated him on that. He said: “Doug, do a return favour and say something nice about the National Party for a change.” In actual fact, I say a lot of nice things about the National Party, but I will give John Key a hand up and say that he and the National Party—whenever they come to the Treasury benches, however long that may take—will retain the KiwiSaver scheme. They may enhance it, they may change it, but they will retain the KiwiSaver scheme. That is my favour to Mr John Key, because he is bursting and wanting to tell the people of New Zealand that, but he cannot. He cannot because he is being whipped along a certain line. He has a monetarist for a leader, and he cannot deviate from the cold, heartless path of National Party monetarism. But he would love to. He knows that National has to get those critical votes in the centre-left to win. So I will do it for him. Mr Key will retain the KiwiSaver scheme when he is in a position to do so, forever and ever and ever.
New Zealand First believes in taxation incentives and we are pleased to see them in this bill—albeit they were put in late, and albeit they were put in, as the National Party members correctly say, without discussion in the select committee. New Zealand First supports this bill because we believe that the Government should lead savings regimes. It should lead them in a responsible manner and give the message to the public.
It is sad that we have lost our savings culture in this country. I believe that we know when that happened—it happened with the changes that both Labour and National indulged in, in the early 1980s. Back then the market prevailed, and the market was going to supply everything. Unfortunately, the market did not give the message to the average person that he or she should save and put a bit aside for the future, and that the Government would help with that. So savings in this country dropped. The KiwiSaver scheme recognises that fact, acknowledges it, and goes out to do something about it. We applaud that the Government has taken a leadership role and we endorse this bill enthusiastically.
This is not a matter of having a situation where we hope everything will work; this is a clearly thought-out bill that has certain objectives and will provide certain outcomes. One of the objectives is to involve people in the financial markets—to involve people in saving and to get them in the door of the financial institutions. One would think that National members would applaud that, as many of them are involved in these institutions. One would think that they would say that it is a good thing. Mr Key actually does think that, but he cannot say so today. It is a good thing to involve people in finance and to help them with financial literacy. We think that the default providers will be basically the big firms. We tried in this bill to involve some smaller firms, and I joined with the National Party in saying that we had some concerns that the more entrepreneurial people, as we saw it, perhaps would not be involved, and that it would be left to the big, old firms to administer this scheme. However, providers have told us that they will use this scheme as a door, and go after the people who come in that door, and that they will perhaps add other enhancements to the scheme—insurance, additional payments, or whatever.
This bill helps people to become economically literate, and we in New Zealand First see that as a big part of this bill. Saving is a habit, saving is a culture, and saving is something that one has to start young to have the full benefits of it in later life—or even in middle life. I can see that mums and dads all over the country will encourage their children to become involved in this scheme—especially mums, because they are usually the tough ones in the family. Fathers usually take a more laid-back attitude to these things, in my experience—certainly, unfortunately I have done so.
This bill has an opt-out clause, not an opt-in clause. People will automatically be a part of this scheme when they sign up to work. If they change their mind and they want to opt out, they have to make a conscious decision, after 2 weeks of employment, to do so. I would suggest that there is something wonderful about this. Let us consider, for example, a young man who goes home after work. His mum looks at his pay packet and asks: “How is the savings going, son? How is the job going?”. The son answers: “Mum, I just opted out of the KiwiSaver scheme.” There would be hell to pay in that household. Mum would be on the case—she would tell junior to get back to work and sign himself up, and get back into the race. It is not until we reach middle age that we really understand the wisdom of what our mum or grandma told us, which was to be cautious with our money, to save for the future, to live cleanly, and to do all of the sorts of things I have done. We have a situation that makes it harder for people to get out of the scheme, and New Zealand First applauds that. We think that that will go a huge way towards making the scheme a success.
I know, and the Opposition has pointed out, and the Government clearly understands, that there will never be the take-up that everybody would wish. It is a pipedream to expect every New Zealander to participate in this and hang on to it forever, as they should. But it is certainly a responsibility of us all to make sure that people understand the need for saving and the value of the scheme, and to do everything we can—by word of mouth, by encouraging our family, by advertisements, and by other means at our disposal—to make sure that young Kiwis, especially, stay in this scheme, because it is in their interest to do so.
One of the things that has interested me—and it is one of the differences between both sides of the table—is that National members, God bless their souls, have continued to come from the perspective of, dare I say it, being rather more sophisticated financial operators than the rest of the country are. I know that they could probably give better advice on where to put one’s money if they were advising their own family, but this is not necessarily a scheme for financial sophisticates. This is for the average person in New Zealand, and I, for one, and New Zealand First, for one party, believe that it is a pretty good attempt. It gets us back to a place we should never have left years and years ago, with the Government strongly encouraging savings amongst its citizens.
HONE HARAWIRA (Māori Party—Te Tai Tokerau)
: Tēnā koe, Mr Assistant Speaker. Tēnā tātou te Whare. I start off by mihi-ing to the chairman of the Finance and Expenditure Committee, Mr Shane Jones, because he told me to.
Last week I spoke about the importance of having an “IwiSaver Bill”, because, as the independent Māori voice in Parliament, the Māori Party is committed to saving iwi, saving hapū, and saving whānau. When I think of saving whānau, I naturally think of saving the children, because there are about 200,000 Māori children in Aotearoa, and nearly half of them live in families that are not eligible to be part of the KiwiSaver package. Mind you, some 80,000 Pākehā kids and another 50,000 Pasifika and other kids will not be eligible to be part of the package, either. That is nearly a quarter of a million kids living in severe and significant hardship right here in Godzone. There are 226,000 Kiwi kids living in homes without heating, going without fresh fruit and vegetables, and too poor to pay for their medicine.
That cannot help but make me think that calling this bill the KiwiSaver Bill is a cruel test of faith, for just as our national icon, the kiwi, is under siege, so too are our national treasures, our children. If anyone needs saving, it is our Kiwi kids, particularly our Māori and Pasifika children. Here is the real parallel: it is the brown kiwi, apparently, that is classified as being in serious decline because of the threat of savage predators and dangerous habitats. How true the comparison is. The predators in this bill may not be stoats and cats, but, make no mistake, they are creating conditions that threaten the very survival of our Kiwi kids.
The New Zealand Institute noted that although there is a healthy national fiscal position and strong corporate profitability, clearly there are still many blocks to a savings culture. Despite the 17 percent growth in the economy, Māori are still unemployed at a rate three times higher than that of Pākehā, and are still overrepresented amongst the working poor. Clearly, the fruits of economic prosperity have not been shared equally. That makes the recommendation of the Finance and Expenditure Committee to extend the scheme to cover Government workers overseas, but still not to provide support for our most vulnerable—the brown Kiwi—a little hard to take. It seems the exotic brands will get the birdseed while the brown Kiwi goes hungry.
We are also disappointed at the select committee decision not to have a lower contribution rate for those on low incomes because it might lead to lower rates of savings for KiwiSaver members. So instead of making positive steps towards expanding the savings culture, as proposed by the Green Party’s 2 percent entry point, once more decisions are being made that will work against the poor brown Kiwi.
The National Council of Women said a family’s ability to save depended on the amount of spare cash that the family had, and it asked Parliament to take into account the rising cost of energy, fuel, phone charges, rates, and the massive debt being created by easy access to loans. The New Zealand Public Service Association also noted that 30 percent to 40 percent of Kiwis on low incomes were unlikely to have spare cash for savings. That is a big group of Kiwis who will miss out. The Royal Forest and Bird Protection Society tells us that the threat facing kiwis is urgent, and that all mainland species of kiwi are threatened with extinction unless the causes of decline are addressed immediately. In much the same way, this bill misses the point that unless we create the conditions for a secure future for the most vulnerable sector of our population, its future will be under threat, as well.
One of the main elements working against a successful savings culture is the fact that people cannot see the rewards, the incentives, or why they should even think of giving up their hard-won cash. The independent actuary, Mr Kelvin Prisk, said the $1,000 initial incentive was too low compared with tax incentives in other areas. He also said the lack of ongoing incentives and the failure to provide for employer subsidies would make it hard for the scheme to succeed. Industry Retirement and Insurance Services and many other financial service agencies, unions, and employers also recommended a lower entry point than the 4 percent noted in the bill.
The KiwiSaver Bill is a concept that the Māori Party desperately wants to support, because of our commitment to investing in whānau, reducing child poverty, and securing long-term prosperity for everyone. But we cannot just ignore the fact that while some Kiwi kids will benefit from having their parents in a job, a lot of other brown Kiwi kids will miss out. Ten years ago, in speaking out against National’s decision to restrict the child tax credit, Annette King, the then Opposition MP, said: “It isolates beneficiaries from other families. It treats them like lepers, and, worst of all, it treats their children differently. What is different between a child from a beneficiary’s family and a child from a family in which someone is working. … Does that child look different when he or she goes to school?”. How quickly politicians forget the fire of their own rhetoric when they get into power. For just as on one hand this Government is calling for long-term savings and financial independence, on the other hand families on benefits are being marginalised and excluded from the benefits of this scheme.
Nearly 2 million people in Aotearoa live on less than $25,000 a year. How will those Kiwis manage a 4 percent cut on an already too thin pay packet? How will Kiwis on the minimum wage get by? A 4 percent cut in an income of $306 a week leaves those people with a take-home pay of $290—the price of a Bordeaux, according to my colleague Mr Gordon Copeland. Another point raised by the Child Poverty Action Group was that taxpayers had to carry all the risk. There is no Crown guarantee for KiwiSaver schemes, which makes all the talk about the Government’s commitment to the security and financial stability of New Zealand families ring just a little hollow. The real worry, though, with the swept up KiwiSaver promo is that low-income families will get sucked into the scheme, thereby sacrificing basic essentials like kai, power, or paying off the dreaded loan shark just because they want to get into a savings scheme, only to find out that by ignoring the essentials they have sacrificed their family’s health and well-being.
I heard a story about a young woman who told us about how as a little girl she asked her mum for some money to get some bread for breakfast and for lunches for her five brothers and sisters. Her mum said: “Nothing, miss. We’ll have to wait till tomorrow.” The Māori Party supports the growth of a savings culture. We want a secure, stable, and hopefully prosperous tomorrow for our people, just like everybody else. But like those Māori kids I just spoke of, we do not want to have to wait until tomorrow, either. We want toast for breakfast, sandwiches for lunch, and bread pudding for tea—or at least the choice to have those things—as well as the ability to buy some flour for a rainy day.
That is why we really like the thinking behind Ngāi Tahu’s iwi saver proposal. Its Whai Rawa scheme is a long-term savings plan to support whānau independence by increasing personal wealth. It is not about separating people whereby the brown Kiwis get locked out of KiwiSaver because their parents may or may not have a job. Whai Rawa is about encouraging Ngāi Tahu to be breadwinners for today and tomorrow. Their vision is
mō tātou, ā, mō kā uri ā muri ake nei—for us and our children after us. The Māori Party applauds Ngāi Tahu’s initiative, and, indeed, all other whānau, hapū, and iwi with the insight and the initiative to take care of the long-term issues affecting the well-being of their members. We know we can do it.
The Māori Party celebrates the success of Māori participating in, and succeeding in, a modern, technologically advanced, and highly globalised economy. We celebrate our sports figures, our broadcasters, our business pioneers, and our iwi innovators. We celebrate the revival of our language, the power of our kapahaka, and the growth of Māori education. We celebrate bold new initiatives like the one taken by Ngāi Tahu to ensure that our people will not only survive but also will flourish.
Māori have a proud history, as a culture, of savings. Through our pātaka kai—our storehouses—rāhui to protect the resources of the seas and the forests, grandad keeping his pension under the mattress, and right down to my colleague Mr Shane Jones pinching his brother’s pennies so he could buy comics later, Māori have a proud history in savings and conservation. We spoke strongly against aspects of this bill during its first two readings so that people would know of the depth of our concern for our people. But we will support this bill at its third reading, because promoting the idea of savings is a worthy ideal, warts and all. Kia ora tātou.
GORDON COPELAND (United Future)
: I would like to start my remarks in the third reading of the KiwiSaver Bill on behalf of United Future by thanking the officials for all of their hard work. I must confess to a splitting headache one night, after I had managed to drag myself through more than 200 pages of highly detailed and technical responses to the many submissions we had received. I was a bit disappointed afterwards to find that I had needed to do only about 40 pages, because that was all that the Finance and Expenditure Committee got through on the first day. We took it in stages right through the process until, as Shane Jones has said, we began to run out of time.
This bill, of course, is about private savings for retirement and encouraging that goal. I have not been convinced by some of the macro-level advice to the select committee, which attempted to demonstrate that New Zealand does not have a retirement savings problem. In my view that was a very, very simplistic analysis, from both a quantitative and a qualitative perception. It is true that the Crown has been saving a great deal of money in recent times. It is also true that the Earthquake Commission has billions of dollars invested, that the Accident Compensation Corporation has billions of dollars invested, and that we have a growing New Zealand Superannuation Fund, all of which come into the definition, at the macro-level, of national savings. But the people who advocate that there is no problem fail to realise, or fail to explain, that those funds are all already effectively earmarked to cover future liabilities, and that none of them is available at all to assist with accumulating private savings by New Zealanders in order to subsidise and assist their standard of living in retirement. We are aiming to provide something over and above New Zealand superannuation through the KiwiSaver scheme.
A similar comment applies to housing. It may be true that on a per household, per capita level we now have a lot of money saved in housing, but that is cold comfort to those who are renting, and, sadly, they are an increasing proportion of New Zealanders. One of the things this bill also endeavours to contribute to is reversing that trend and going back to New Zealand again being in a world-leading position in terms of the number of family-owned homes. Ideally, United Future would like to see every family living in their own home, for that, of course, provides enormous security, in itself, in retirement.
I will now talk about the quality of the savings investment. Evidence was presented to the Finance and Expenditure Committee today by the big fund managers of this country that we are actually moving backwards right now. People are withdrawing more money from managed funds right now than they are putting in. Where is that money going? It is going partly into housing—mainly into an increased number of rental properties—and also, would you believe it, into second-tier finance company bonds, or, in other words, junk bonds. That is tragic for New Zealand. The whole situation we are in at the moment, from a savings perspective, is simply tragic. We are actually on the road not to prosperity but to poverty. The KiwiSaver Bill is the first step in beginning to change that around, for the benefit of New Zealanders and for their future.
The second step comes in the form of the tax bill now before the Finance and Expenditure Committee. It will revolutionise the taxation framework around savings, particularly those through managed funds, or what are now called portfolio investment entities. It is my hope and dream that those two things together will see New Zealanders begin to save. I do not think we are any different from anyone else in the world. All we need are the right climate, the right incentives, and the right signals from the Government, and I think we will see savings happen.
I would like to ask members today to think about this. Let us hope that in 10 years’ time private savings by New Zealanders may be, let us say, $100 billion. That is not impossible. Australia has just broken through the $1 trillion mark. That is the route we need to go down, so that we have capital markets here that are robust and enable companies to begin to expand both domestically and internationally. As I have said earlier, I hope that the level of private homeownership will also again begin to increase, so that we reverse the negative trend that we have got ourselves into and go back to the ideal of a home for every family.
There are a few things about the KiwiSaver scheme, and United Future’s contribution to it, that I would like to put on the record. The first thing I say is that in our bid to the Government, leading up to the 2005 Budget, we asked: “in the event that a workplace savings scheme is introduced that provision be made to allow holders of workplace savings schemes to make a withdrawal for the purpose of purchasing a home.” I am delighted that the Government saw fit to adopt that United Future suggestion, and that this bill enables people to withdraw their funds to buy a first home. In addition, of course, the Government has enhanced that ability, by offering a subsidy of up to $5,000 per saver—$10,000 for a couple—to people who qualify for it. The subsidy will be relatively small in its scope, but nevertheless it will also make a very, very worthwhile contribution.
That leads me directly to the mortgage diversion proposal, which has also now wisely been adopted by the Government. John Key said it had emerged as if by magic; Shane Jones said it had emerged from the ether. Well, I learn things about my colleagues every day, because I did not know John Key was a practitioner of the black arts, and I did not know Shane Jones was an anaesthetist. But I want to tell members that it was simply the magic of common sense, and it was also common sense that broke through the ether and just simply brought to the Government a well-thought-through scheme, which it wisely accepted. Someone once said the only things that really surprise most politicians are straightforward dealings. It is as simple as that. There was no magic and no ether—nothing of that sort—but just straightforward dealings and a good idea whose time had arrived. Of course, it will enable people to put aside money for their retirement and at the same time assist them to reduce their mortgage liabilities. And we all know that most New Zealand families today are mortgaged to the eyeballs and beyond. We need to see some real, good change come about regarding that.
The third thing I would like to mention, which was in our 2005 Budget bid to the Government in relation to the introduction of workplace savings schemes, is that we asked the Government to remove employee contributions from the assessment of taxable income—in other words, to make employee contributions tax free. The Government has not adopted that suggestion, but it has, as we now know, decided to make employer contributions tax free. I think that is also a marvellous enhancement to KiwiSaver. Some people seem to think—and I have seen a couple of comments in the media—this will somehow put pressure on employers to, for example, settle wage demands partly through an increase in wages and partly through a contribution to KiwiSaver. I have no doubt that will happen, and I think it is an excellent thing to happen. Furthermore, I expect that employers will be enthusiastic about it, because the fact is that being a good employer is good business. That is how one builds a strong business—one values one’s staff. They are a business’s most important asset.
I will tell the House, without any fear of contradiction, that I know enough about New Zealand business to know that a lot of employees will go to employers and ask them to please put 1 percent of their pay rise into the KiwiSaver scheme, because they will get that tax free, whereas if the employer gives it to them in salary they will have to pay tax on it at the rate of 19.5c, 33c, or 39c in the dollar. And most employers will say yes, because they want their staff to be happy and highly motivated to be involved in the business. It is at no cost to the employer—none whatsoever; there is no compliance cost—nothing. Of course employers will do that, and of course it will boost the amount going into KiwiSaver. I have no doubt about that.
Finally, I want to express my disappointment in National’s position. I was quite shocked when John Key told the House yesterday that the continuance of KiwiSaver could not be guaranteed if there is a change of Government in 2008—that National does not guarantee continuing the KiwiSaver scheme. I am really disappointed in that, because I had hoped that for once we might have a non-partisan approach on this. I just hope and pray that National will not go down the road that Muldoon went down in 1975, because I regard that as probably the single worst decision by any Government during my lifetime. I think New Zealand has paid a huge price for it, and I again express the hope that National will rethink its position and give New Zealanders an assurance that this new scheme will continue indefinitely. If National wants to enhance it when it is on the Treasury benches—if it gets there—we are prepared to help it to do that. But National should not, for goodness’ sake, make this issue into a political football.
CHRIS TREMAIN (National—Napier)
: Jill Spooner, vice-chairperson of the Association of Superannuation Funds of New Zealand, today confirmed the warning that was delivered by my colleague John Key, following last week’s last-minute announcement of changes to the KiwiSaver Bill. That warning is fourfold. Firstly, it is that the specified superannuation contribution
withholding tax changes advantage the new KiwiSaver programme at the expense of those hard-working Kiwis who have been diligently—I repeat, diligently—taking personal responsibility for their own retirement. I suggest that there are many constituents of members on both sides of the House in that respect, who have been taking personal responsibility for their own retirement and who have been squirreling away their hard-earned dollars in numerous superannuation schemes already in operation around this great nation.
Secondly, unless even further changes are made to the KiwiSaver Bill—as if there had not been enough already—to accommodate those existing savers with a similar tax advantage, then we can expect closures of existing superannuation schemes, with funds being distributed to beneficiaries. Thirdly, mortgage diversion—that much-loved product of Mr Gordon Copeland—coupled with specified superannuation contribution withholding tax, will ensure that KiwiSaver accounts are used simply as pass-through checking accounts, to ensure that the specified superannuation contribution withholding tax break is received and that current savings habits for retirement, such as buying one’s own home, are not changed but continue unabated. Fourthly, the on-the-hoof policy decision to implement a specified superannuation contribution withholding tax incentive and a mortgage diversion option, which are both designed to encourage savings—as quite clearly put by Mr Shane Jones, coming from the deep, dark ether—could in fact reduce the net wealth of New Zealanders.
It is somewhat ironic, then, that these statements are being made at the ninth hour of this legislation, when those concerns—plus many others—were raised at the Finance and Expenditure Committee by various submitters many, many months ago. To be honest, most submissions were broadly supportive of the purpose of the bill, but that was where it finished—at the purpose, which is to encourage a long-term savings habit. The likes of the Financial Services Institute of Australasia, Aon, and Business New Zealand were supportive of the intent of the bill and considered it to be a “laudable objective”. The likes of BNZ and Fidelity Life were supportive of “the need for a culture change and the development of a long-term savings habit.” Despite this, by far the majority of the submissions to the Finance and Expenditure Committee expressed either reservations or, more so, considerable reservations, about the success of KiwiSaver. The Public Service Association expressed that “even with KiwiSaver, many people will still under-save.” The Investment Savings and Insurance Association said that KiwiSaver was “not bold enough to prompt a long-term change in savings habits.” AMP said that it “would not address the magnitude of the issue”, and the Retirement Policy and Research Centre said that “the purpose of this scheme is unclear and will not change long-term economic performance.” ING, Mutual Fund Ltd, and ANZ said that “the home loan assistance provisions are inconsistent with the objectives of the bill.” Most telling was the Association of Superannuation Funds, which initially said: “The scheme’s objectives will not be achieved but considerable expense will be involved.” Today, in light of the recent last-minute changes by Dr Cullen to the specified superannuation contribution withholding tax, the Association of Superannuation Funds is crying foul after its members have been left high and dry. KiwiSaver participants will now receive a last-minute tax break on the specified superannuation contribution withholding tax, while hard-working Kiwis who have been saving for years have been left out in the cold.
In particular, I would like to take up the issue raised by the Retirement Policy and Research Centre, which said: “KiwiSaver will not prepare New Zealand for an ageing population, as economic growth is the only practical method to alleviate this pressure.” Where do we sit in regard to economic growth? Well, we are going backwards. We all know the statistics. In 1970 New Zealand sat neck and neck with Australia. Over the next 20-year period we grew at an average of 1 percent per annum. The innovative and visionary changes of the late 1980s and early 1990s allowed this nation to grow at a significantly higher rate, averaging 3 percent per annum up until last year. The current Labour Government has sat back and taken credit for the economic growth, when it knows full well that its own policy agenda has been one of social transformation, as opposed to an increase in the income and wealth of hard-working Kiwis. Right now, we face a period of high inflation—inflation is topping 4 percent at the moment—coupled with much lower economic growth projections, which are well below what we have achieved in the last 15 years.
That outlook will increasingly pull us further away from the incomes achieved by our closest neighbour, it will continue to send more and more Kiwis overseas, and it is a recipe for making an increase in savings even more difficult. It does not matter how good KiwiSaver is, if hard-working Kiwis are not earning enough money to pay for the basics in life—as was so adequately pointed out by my colleague Hone Harawira. While inflation is eating away any increase in Kiwis’ wages, they will find it difficult to save.
I would now like to focus on KiwiSaver and its impact on small businesses. Recent changes have focused purely on the benefits to employees. There are now incentives to join the scheme—the $1,000 after the first year, the specified superannuation contribution withholding tax break, and, of course, the mortgage diversion. Quite frankly, employees would be silly not to take up the opportunity to use KiwiSaver as a pass-through account to get the tax break and to pay it off their own mortgage. The opportunity costs of carrying a mortgage with a higher interest rate than that being earned in KiwSaver makes it illogical not to use KiwiSaver as a pass-through account while one still has a mortgage on one’s house.
Employers become the conduits for a tax break, via a complex pass-through account. They are expected to act in good faith towards this scheme, when I know that it will add significant costs to their organisations. Mr Jones had the cheek to say that there would be no compliance costs to businesses involved in this scheme, when he knows well that there will be significant costs in terms of the advice on the scheme that employers will be expected to provide and the processing of refunds for those who opt out. Employers will be advising existing employees and helping them opt into the scheme, dealing with the small refunds from the Inland Revenue Department and then passing them on to the employee, dealing with changes of rates, and changes in the scheme for employees who change their mind, and dealing with temporary employees who wish to be KiwiSaver members. There will be significant compliance costs.
There are no benefits to employers from this scheme. Should an employer choose to put in an employer contribution, there is no difference to the employer, as his or her contribution stays the same—totally tax deductible—whereas the employee will benefit to the tune of specified superannuation contribution withholding tax. No, the employer will be expected to shoulder the costs of sign-up and sign-off, credibility of the scheme, education, and change. I wonder whether the Minister of Finance has taken that fully into account, and I suggest that perhaps this is the reason for the last-minute changes to the bill—the last-minute incentives to try to overcome the issues identified by submitters at the select committee hearing.
I will close with a quick summary of the submissions compiled by officials at the select committee hearing: firstly, KiwiSaver does not go far enough to increase savings rates; secondly, the homeownership assistance is inconsistent with the purpose of encouraging saving for retirement; thirdly, KiwiSaver is expensive and there has not been enough research on whether it will increase saving; fourthly, and finally, KiwiSaver will not prepare New Zealand for an ageing population. The policies that focus on growing New Zealand’s economic pie, and on growing wages for all New Zealanders, will be the key to asset accumulation and to long-term savings.
Hon LIANNE DALZIEL (Minister of Commerce)
: It is certainly very gratifying to speak in the third reading of the KiwiSaver Bill and to see it finally passed through the House. I am very disappointed that the National Party has decided not to support this legislation, because it represents such an important step towards helping to create an environment where all New Zealanders can save for their future well-being.
I was particularly disappointed to note that the Opposition spokesperson on finance spent most of his speaking time talking about the Minister of Finance. I think there is an element of jealously there. Twenty-three times he mentioned the Minister’s name, in the course of his speech. I do not think he managed to mention the word “KiwiSaver” as many times, but I am sure I will make up for it by saying to this House, and to anyone else who is listening, that I believe this is a special day in our nation’s history, because it represents such an important change from the way in which things have happened in the past.
We will make the change by facilitating workplace-based savings with deductions from salary and wages at source. Making deductions at source is the simplest and most effective way for people to overcome their inertia and to start to develop a savings habit. I am surprised that members opposite want to deny people that opportunity, when we know that workplace-based savings schemes have been stagnating for some time. I think others have made that comment in the House this afternoon.
New Zealand is a very different place from what it was just a few years ago, and today the average worker will have many different jobs with many different employers during the course of his or her career, rather than stay with the same employer for more than 40 years, as used to be the case. I think some of our parents probably experienced long-term employment with one employer over their lifetime, and left with a gold watch. It does not happen so much today. Many work-based superannuation schemes are dated from those old days, and they have not changed with the times or with the workforce. KiwiSaver is an important step in reigniting the savings habit and enabling New Zealanders to start to build some security for their futures. The way the initiative is structured should make it easier for workers and others interested in saving for their retirement to make a start.
Because the bill facilitates savings in private KiwiSaver superannuation schemes, it both supports and builds on the current base of superannuation products we have in New Zealand. That also means that existing superannuation schemes will be able to adapt to participate in the KiwiSaver environment, thus minimising the potential for scheme wind-up and the release of superannuation funds out of savings.
The work-based focus of KiwiSaver means it is inevitable that employers will have some obligations under the legislation. Those obligations have the potential to impose costs on employers. However, the legislation has been designed to minimise those costs through directing information and funds through the Inland Revenue Department. This is an important issue for me, both as Minister of Commerce and as Minister for Small Business. I am pleased we have been able to be responsive to the concerns of stakeholders and employers, including those of small business, by making some significant changes to the scheme.
The original proposed start date for KiwiSaver of 1 April 2007 was raised as a matter of concern by many submitters. Once again, the Government demonstrated its responsiveness and extended the start date to 1 July 2007. The new implementation date gives employers and potential KiwiSaver scheme providers more time to prepare, and will help to ensure that the implementation of KiwiSaver goes as smoothly as possible for all involved.
Amendments to the automatic enrolment process mean that new employees will have the deduction of KiwiSaver contributions start from their first pay. That will make it less likely that new employees will miss the money they will be saving for their retirement. I was very keen on that provision; I wanted people to see what their pay packet would look like straight away. If new employees do decide to opt out because they cannot afford to stay in the scheme, then any KiwiSaver deductions will be refunded as expediently as possible.
The period during which new employees can decide to opt out has also changed. It now begins at the end of week 2 after a new employee starts his or her job, and runs until the end of week 8. That change allows employers to report to the Inland Revenue Department just once a month, and therefore reduces compliance costs. Because the department will not be advised of new employees until later, that longer opt-out period is needed. The new opt-out period also gives employees more time to consider whether to remain in KiwiSaver, and to seek advice from a financial adviser if that is desired. All of those provisions are important; we have made it very clear that it is not the responsibility of employers to provide financial advice.
In conclusion, I say that I am delighted to be part of a Government that has worked hard since 1999 to put financial security in retirement within the reach of every New Zealander. KiwiSaver is an outstanding and momentous initiative that will help to foster a savings culture in New Zealand and will enhance the financial security of its members in retirement. Through the relatively simple mechanism of automatic enrolment organised in the workplace, KiwiSaver allows for deductions at source, provides benefits of economies of scale, and reaches a high proportion of the population who are able to save. That aspect of KiwiSaver has already earned it international accolades, and we are confident that KiwiSaver will earn the accolades of employers, employees, and the savings and investment sector throughout New Zealand.
Others have spoken of the 1975 National Government that destroyed New Zealand’s first workplace-based superannuation scheme by using totally misleading advertising. I recall, as a 15-year-old, seeing the Cossacks dancing across the screen and seeing the other cartoons National used as well to drive racial wedges through our society. Superannuation has been a political football ever since. Over the past 6 years this Labour-led Government has restored confidence in New Zealand superannuation by reversing the cuts imposed by a National Government to pay for the tax cuts in the 1990s, and by establishing the New Zealand Superannuation Fund to smooth payments into the future, thereby guaranteeing the universality of New Zealand superannuation—and, now, KiwiSaver. I am a proud New Zealander today as the KiwiSaver Bill becomes law.
A party vote was called for on the question,
That the KiwiSaver Bill be now read a third time.
| Ayes
71 |
New Zealand Labour 50; New Zealand First 7; Green Party 6; Māori Party 4; United Future 3; Progressive 1. |
| Noes
48 |
New Zealand National 48. |
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