Dunne Peter: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Dunne Peter: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13730] 
Hon PETER DUNNE (Minister of Revenue) 
: 
 I am glad that earlier Mr Foss spotted the most critical element of this bill in the massive amendments that are being moved to it when he referred to the new Part 2A inserted by clause 263B which affects the Health (Drinking Water) Amendment Act 2007. This was the deep dark secret of this bill and I give him credit for having discovered and revealed it. 
I should tell the Committee precisely what this change does. It replaces section OB 1 of the Income Tax Act 2004 with section YA 1 of the Income Tax Bill. More seriously this change is a drafting change consequent upon the rewrite of the Income Tax Act. It picks up the provision that is in the 2004 Act which technically no longer exists and carries it over to the bill. But I give the member credit for his perspicacity in getting to the heart of the issue. 
On a less serious note I turn to the more substantive comments the member’s colleagues have made. Mr Tremain and Dr Smith have raised questions about young people taking up KiwiSaver why the member tax credit is not available to those under the age of 18 and a range of associated issues. The underlying concern that they have expressed is that this legislation is potentially limiting entry into KiwiSaver by people under the age of 18. I am pleased to inform those members that of the 316000-odd people who have signed up to KiwiSaver already just over 16000 of them are 16 and 17-year-olds. So despite the absence of the member tax credit and despite some of the other incentives such as compulsory contributions not being available to those people we still have a significant uptake. 
Craig Foss 
: That’ll be by the parents. 
Hon PETER DUNNE 
: The member says that may be by the parents entering into a savings arrangement on behalf of the children. That is quite probable. I can remember many years ago when some of us were young callow youth there were various savings schemes our parents entered into on our behalf that as we grew older and became earners we were able to carry on. I think precisely the same will happen with KiwiSaver and I welcome the fact that we are already seeing such a significant uptake. 
Dr Smith said earlier that the Government may run some huge fiscal risks here. That is absolutely correct. We have already exceeded 100 percent of our year 1 target for KiwiSaver and the year from July is barely half over— 
Charles Chauvel 
: An excellent response. 
Hon PETER DUNNE 
: On the one hand it shows that we will run some risks and on the other as Mr Chauvel says it is an excellent response. People can see that KiwiSaver is a scheme that is entirely beneficial to them and to their long-term interests. 
Dr Smith raised a concern about employers having to pay their contribution on top of existing salary or wages they may be paying out and settlements they may be reaching in respect of their employees. He overlooks the fact that employers will be eligible for an employers’ tax credit of up to $20 a week to offset the cost of that contribution. The consequence of that is that in 2008 the employers’ contribution is 1 percent and the salary or wages that will be covered will be up to $104000 per employee. That will go to 2 percent in year 2 or down to $52000; 3 percent in year 3 or down to $34000-odd; and in year 4 with the 4 percent contribution rate the subsidy will still cover $26000 of salary contribution. 
Over that 4-year period there is a deliberate phase-in. Employers will be able to restructure their costs in such a way as to not be adversely impacted. If the current trends continue we will see a substantial proportion of the New Zealand savings market enrolled in KiwiSaver and able to take advantage of all of its provisions—for the first time perhaps. 
I remind the Committee that this country has had a shocking history of long-term savings over a long period. We can go back to the 1970s and the superannuation debacle at that time the 1980s superannuation debacle and the mid-1990s superannuation debacle. For the first time KiwiSaver based on voluntary contributions has the potential to get us over that crisis that we have all lamented at various times over the last three decades. That crisis has put us into a position where our lament now is: “Look how good Australia is. Look how good Australia has become since compulsory superannuation came in in that country.” I remind the Committee that that was in the mid-1990s. It is a comparatively short transition. I suspect very strongly that if we were to have this debate in a decade’s time we would be saying that some of the great strengths of the New Zealand economy at that point will be occurring because of the investment through KiwiSaver and the level of uptake. 
I think that this scheme not only is very timely but also is on the right track. It has all the right incentives for people to join. I want to make just a quick comment as I close in response to Katrina Shanks and one or two others who have talked about—and I think Dr Smith used this phrase—“ambush and sandpaper arrangements” in respect of employers. I think that is most unfortunate. At the time that these proposals were being developed earlier this year in the context of the 2007 Budget it was totally appropriate that there be a measure of secrecy and security about their development. I well recall being at the Budget lock-ups where employers were first briefed on the impact of these changes. I did not see and do not remember anyone at those meetings talking about ambushes or other things. In fact their initial reaction to the changes was extraordinarily positive. If one goes back and looks at their initial statements immediately afterwards one will find that that was the case. 
There will be implications for employers—of course there are—but they are essentially matters to be resolved between employers and employees. I find it somewhat ironic that those groups that spend a lot of time telling successive Governments to butt out of the employer-employee relationships now turn round and say: “Oh you’ve made it difficult for us because you’re going to require us to talk to our employees to negotiate with them.” This is the very thing these groups have been telling Governments for years they should be able to do in a free and unfettered way. They cannot have it both ways.