Cullen Michael: KiwiSaver Bill — Third Reading 
Cullen Michael: KiwiSaver Bill — Third Reading 
[Volume:633;Page:4994] 
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 $1000 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 $50000 a year with a $150000 mortgage which is by no means untypical in a New Zealand situation. At the moment the KiwiSaver contribution is $2000 a year. People can divert $1000 of that to paying off their mortgage. Their mortgage repayment is probably in the order of $14000 or $15000 a year—and Mr Key is trying to tell the country that allowing $1000 to be diverted towards that $14000 or $15000 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.