As I argued in the post on Labour’s left-sounding policies, KiwiSaver is not nearly as progressive as the Labour Party makes out. Low-income earners will not be able to afford to take part in the scheme, and the government’s subsidies will therefore go towards more wealthy New Zealanders. Also, KiwiSaver will operate as a subsidy to employers. Michael Cullen and Treasury have also confirmed this - Cullen says that the scheme will mean that employers can argue that their contribution to it is in effect a pay rise and thus KiwiSaver will reduce wage rise demand. He says that KiwiSaver will therefore inevitably place downward pressure on pay. It is also worth pointing out that:
- Employers will receive a government subsidy to offset the cost – up up to $20 per week per employee
- Employer contributions are tax free (up to 4 per cent), which means for every $1 they contribute to employees only costs them 67c.
- The change would be phased in at only 1% a year over four years
- The benefits to employees will fall mostly to the wealthy (the Government point out that someone on a salary of $100,000 will be better off by about $100 a week)
- Cullen estimated the change would impose about a 1% rise in the cost of employers' payrolls by 2011-2012, which he points out is significantly less than the 9% that employers pay in Australia for the scheme
- Employers will benefit most through the fact that the scheme will futureproof the economy against an increasingly untenable current account deficit.
