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KiwiSaver cuts may erode business profits, drag on wages

Article – BusinessDesk

May 19 (BusinessDesk) – Employers may face dwindling profits and workers lower wages as a result of the changes to KiwiSaver, according to government officials.

KiwiSaver cuts may erode business profits, drag on wages: govt officials

By Paul McBeth

May 19 (BusinessDesk) – Employers may face dwindling profits and workers lower wages as a result of the changes to KiwiSaver, according to government officials.

Finance Minister Bill English today unveiled well-signalled changes to the savings scheme, with a 1 percentage point increase to the minimum employee contribution and the compulsory employer contribution to 3% from 2% starting April 1, 2013.

Treasury and Inland Revenue officials warned that will lead to additional labour costs for businesses, and may erode profitability in the short-term, according to the regulatory impact statement.

“The additional cost for employers is likely eventually to be reflected in wage settlements for all employees, although this impact should be limited as the economy and nominal wage growth are expected to strengthen from the end of 2011,” Treasury advisor Steve Mack and Inland Revenue policy manager Craig Latham said in their report.

The government expects to squeeze $2.6 billion over a four-year period from the KiwiSaver changes, which also include halving the Member Tax Credit rate to 50 cents for every $1 contributed by members up to a maximum $521 a year – half the current maximum from June next year.

Those savings will help shift the scheme’s costs to the private sector from the public by reducing government subsidies, and may encourage higher private contributions, the report said.

The government officials project a 1.85% to 2.25% improvement in net international investment position over the next decade, a ratio of the country’s total value of offshore assets to foreign debt.

The employer contributions lose their tax-free status from April next year and will be taxed at the employee’s marginal rate. The government officials figured this will be the least controversial cut, even though it will save the crown an estimated $678 million over four years, as it was “relatively hidden,” the report said.

The officials opposed the introduction of a compulsory scheme, saying any modest increase in the level of national savings would be offset by the social cost to low income earners who may not be able to afford it.

(BusinessDesk)

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