Prime Minister John Key this morning confirmed his Government will reduce KiwiSaver’s Member Tax credit – the 2 per cent subsidy the Government pays to savers in the scheme – in a move to make it more affordable.

Individuals and employers would be expected to make up the difference, he said in a pre-budget speech in Wellington today.

Mr Key acted to clarify his Government’s intentions toward the scheme after days of hints of changes to the scheme and Working For Families to come in next week’s Budget.

The amount of the tax credit reduction will be announced in the budget. Under the tax credit, the Government matches contributions by up to $1042.86 each year. This works out to about $20 a week.

\”The Government intends to reduce the amount of money it has to borrow from overseas to put into KiwiSaver, and increase the amount of genuine savings from the private sector,\” Mr Key said.

\”The mix of contributions to KiwiSaver accounts will change, with less coming from the Member Tax Credit and more coming from both individuals and employers.

The $1000 kick-start for new KiwiSaver members will remain as it is now.\”

As previously indicated, Mr Key said the changes would not occur until after the November election, giving people and businesses time to adjust.

\”Increased contributions from people and businesses will happen at a time when the economy will have well and truly recovered, and both wages and employment are increasing.\”

The changes were expected to maintain total contributions into KiwiSaver and \”modestly improve the rate of national savings\”.

Mr Key again said Working for Families would also be better targeted at lower income families while being less generous to wealthier families.

\”We will do this gradually, in a way that minimises the impact on families.\”

The student loan scheme is also to be adjusted but would remain interest free.

– with NZPA

Reference: http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10724872