Dunne Peter: Taxation (Annual Rates and Budget Measures) Bill — First Reading Second Reading In Committee 
Dunne Peter: Taxation (Annual Rates and Budget Measures) Bill — First Reading Second Reading In Committee 
[Volume:672;Page:18885] 
Hon PETER DUNNE (Minister of Revenue)  
on behalf of the  
Minister of Finance 
: I move  
That the Taxation (Annual Rates and Budget Measures) Bill be now read a first time. 
 This bill focuses on two main important areas for New Zealand at the present time: building faster economic growth around higher national savings and setting New Zealand back on the road to surplus in the repayment of debt. As the Budget outlined the Government will continue to protect the most vulnerable New Zealanders by increasing funding for health and education and maintaining income support programmes. But to achieve those objectives the Government needs to reduce its spending and its level of debt. 
This bill addresses two large programmes administered through the tax system Working for Families and KiwiSaver to maintain targeted support while eliminating unsustainable spending. The Government recognises that some New Zealand families need assistance. This bill aims to provide those people on a continuing basis with the support they really need while remaining fiscally prudent. The bill achieves that by increasing the abatement rate by 1.25c at every inflation adjustment from 1 April 2012 until it reaches 25c in the dollar by lowering the current abatement threshold of $36827 to $36350 on 1 April 2012 and then by reducing it by $450 at every subsequent inflation adjustment round until it reaches $35000 and by removing the inflation adjustment for the family tax credit amounts for children aged 16 and over from 1 April 2012 until the amounts for younger children catch up. 
Collectively these changes will help to ensure that limited resources are directed to where they are most needed. The tax credits will begin reducing earlier on the income scale and they will reduce faster. That will mean that a number of families who are higher up the Working for Families income scale will no longer qualify or will receive lower amounts. 
There has been much public discussion about possible changes to KiwiSaver. I assure the House that the Government is committed to improving national savings. KiwiSaver has been extremely good at encouraging saving habits amongst New Zealanders but like any taxpayer-funded programme the spending associated with it needs to be prudent. Currently over $1 billion a year of what goes into people’s KiwiSaver accounts comes from the Government through subsidies and tax breaks. Over time the Government has put in nearly half the money that has built up in KiwiSaver accounts. But to continue to be an efficient part of the savings landscape KiwiSaver needs to be affordable as a retirement savings scheme for its members for employers and for taxpayers. 
To that end the Government is proposing changes that will ensure that the desired outcome is still achieved and that will ensure the future of KiwiSaver by making the scheme more affordable while continuing to encourage savings. The main changes to KiwiSaver are therefore that all employer contributions to employees’ KiwiSaver accounts will be subject to employer superannuation contribution tax—ESCT—from 1 April 2012. Employer superannuation contribution tax will be applied at a rate equivalent to an employee’s marginal tax rate meaning that it will have a greater impact on higher-income earners. The member tax credit is to be halved for the next MTC year—that is the member tax credit year that ends on 30 June 2012. The Government will now contribute 50c for each dollar contributed by the individual KiwiSaver member up to a maximum of $521.43 per year which is equivalent to $10 per week. The minimum employee contribution will rise from 2 to 3 percent for all members—new and existing—from 1 April 2013. The default contribution rate for new employees who do not select a rate will also be 3 percent from that date. Compulsory employer contributions will rise from 2 percent to 3 percent from 1 April 2013. 
Of all these changes this bill contains the member tax credit and the employer superannuation contribution tax changes. The changes to employee and employer contribution rates will be included in a bill to be introduced later this year. 
This bill also sets the annual rates of income tax for the 2011 tax year. These are the main features of this bill. When taken together they help ensure that Government spending is both prudent and focused on areas of real need. This bill continues the focus on providing for a fair and equitable tax system for all supports national savings and encourages economic growth. It is therefore with great pleasure that I commend this bill to the House.