Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
Smith Lockwood: Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill — In Committee 
[Volume:644;Page:13723] 
Dr the Hon LOCKWOOD SMITH (National—Rodney) 
: 
 Part 1 of the Taxation (Annual Rates Business Taxation KiwiSaver and Remedial Matters) Bill which we debated earlier covers amendments to the Income Tax Act. Part 2 covers amendments to the Tax Administration Act. Part 3 which we are debating now covers amendments to other Acts and regulations. The principal set of amendments that National will be focusing on in this debate is the set of amendments to the KiwiSaver Act 2006. 
They are very significant amendments. What these amendments do and what Part 3 does is introduce the whole compulsory employer contribution regime for the KiwiSaver system here in New Zealand. These are the provisions that caused Business New Zealand to come to the Finance and Expenditure Committee and say that New Zealand businesses had been ambushed by the Government and that the Government proposed these measures in the Budget without consultation with employers and businesses in New Zealand. 
That is pretty powerful language from a group that is not known to be anti-Government. Business New Zealand works quite closely with the Government but it said to the select committee that these provisions ambushed New Zealand businesses. It went further and told the select committee that some of the provisions around the compulsory employer contributions were “employment relations sandpaper”. In other words the provisions would cause major problems to employment relations in New Zealand as we look ahead. 
What did Business New Zealand mean by that? Probably the best example of what it meant by that can be found if we look at clause 219 in the bill which is on page 363. Clause 219 is a long clause with many amendments to the existing Act such as sections 101A 101B 101C etc.—it goes right through. The new section that will cause quite a lot of trouble is new section 101B to be inserted by clause 219. Let me draw the Committee’s attention to what that new section is doing. It states: “The purpose of this section is to ensure that for contractual arrangements of parties to an employment relationship (as defined in section 4(2) of the Employment Relations Act 2000) compulsory contributions are paid in addition to an employee’s gross salary or wages described in section 101D(3).” 
This means that employers may have entered into existing agreements with employees based on an employer’s ability to pay a certain level of wage or salary based on the business’s income. Suddenly this legislation will require employers to add to employees’ total remuneration package through making contributions under this clause to the compulsory employer contributions. To land that on employers part way through negotiations on an employment relations agreement when they may be already fully stretched in meeting the obligations of that agreement is obviously a very significant imposition on employers. 
We will be covering a number of the various new sections inserted by clause 219 as this debate goes on but perhaps one of the features that concerns us most as we look ahead—and a number of features concern us—relates to employment agreements and the negotiation of them. How are employers to handle them? An employer may negotiate an employment agreement with a number of workers and some workers may say: “Yes we want to be part of KiwiSaver.” and the employer may say: “OK if you want to be part of KiwiSaver we can afford this much as a salary or wage increase. But then we have to consider that on top of that we have to pay our compulsory contribution so we will agree to this deal for you.” Other employees may say: “No we’re not going into KiwiSaver.” so the employer may say: “OK to make it a fair package you have to be remunerated a little more to make sure you have an equivalent package.” So a slightly higher wage or salary is agreed on for that person because the employer does not have to make a compulsory employer contribution which is part of a total remuneration package. 
What happens then if a few weeks or a couple of months later an employee who gets that slightly higher wage or salary remuneration because he or she is not part of the KiwiSaver scheme suddenly says they want to be part of the scheme? That person has a right to do that under the law so the employer is caught. The employer has agreed to a certain wage or salary package on the basis that a person was not part of the scheme but the person changed his or her mind and now wants to become part of the scheme. 
That is the kind of friction that Business New Zealand was talking about. The select committee heard a lot of submissions on this particular issue. A lot of submissions were received on new clause 219. There are a number of other areas such as the age of entitlement on which employers make contributions. Other colleagues will be covering the full range of issues but I wanted to emphasise that first set.