Would KiwiSaver tax change just help wealthy?

Removing tax on investment returns would disproportionately benefit the country's wealthy and high-earners, the Green Party says.

KiwiSaver has become a political issue this election. The ACT Party wants to remove the government contribution to KiwiSaver accounts, which is currently $261 a year for people who contribute at least $1042 and earn less than $180,000.

Instead, it would make investment earnings in superannuation schemes tax-free. This would provide a compounding effect that could make balances significantly larger when people reached retirement. ACT has calculated it could help a 20-year-old earning $60,000 save an extra $200,000 by the time they turned 65.

New Zealand is relatively unusual by international standards in that it does not offer any tax incentives to encourage saving for retirement, beyond the PIE scheme which caps tax at 28 percent.

The Green Party commissioned Victor Consulting to look at the impact of the proposal on different New Zealanders.

It found people with larger balances stood to benefit much more.

Lower-income people were often able to access the government contribution, but tended to have smaller KiwiSaver balances, so benefitted less from the removal of tax.

Victor Consulting calculated that the 20 percent of households with the highest incomes would receive 63 percent of the net benefits of ACT's policy in the first four years, at an average of $3800 per household.

The lowest-income 20 percent would receive 1 percent, an average $40 per household over four years.

The wealthiest 20 percent would receive 73 percent of the benefits of the policy, worth $4400 per household, and the poorest 20 percent would lose an average of $580.

The 15 percent of people with KiwiSaver balances over $80,000 would receive 87 percent of the net cost of the policy and the 48 percent with balances under $20,000 would lose an average $340 over four years.

Green Party co-leader Chloe Swarbrick said KiwiSaver in general tended to benefit higher-earners more than those on lower incomes.

"That's why we have long made the point that KiwiSaver should be just extra savings on top of superannuation. Our universal superannuation scheme is one of the reasons we have one of the lowest rates of elderly poverty in the OECD.

"We are a little bit concerned about the way that the debate about superannuation and retirement is currently being framed in this country by particularly right-wing politicians."

She said ACT's policy felt like "welfare for the wealthiest".

"The point of this exercise was just to demonstrate that something can sound really good on the political hustings when it comes to taking tax off this or that but it is really important we have thorough economic analysis so people understand the distributional impacts."

Simplicity chief economist Shamubeel Eaqub said taking tax off contributions to KiwiSaver rather than returns could benefit lower-income people to a greater extent.

"Taking that contribution as tax-free means the effective tax you pay on your take-home pay is less so you're better off. Those who earn more progressively pay more tax so for every dollar of tax you take off, you get more benefit at the bottom end."

He said decoupling employer and employee contributions would also be an effective way to help lower income people who might not be able to afford to contribute themselves.

But Koura founder Rupert Carlyon said he thought ACT's policy was the strongest of the KiwiSaver policies announced so far. "It's the only policy that actually says 'we're going to give you a really good reason to invest in KiwiSaver'."

He said KiwiSaver as a whole was more compelling for people on higher incomes and that was one of the reasons the government contribution was structured as it was.

"That was built in a way to make sure that the benefit was equal across everyone ... the problem is the government contribution has continued to be hollowed out and it's become less and less relevant."

Swarbrick said the Green Party was also in favour of keeping working contributions voluntary and requiring employers to contribute on top of wages, not as part of total remuneration contracts.

"We're also obviously really concerned about the statistics with regard to almost 60,000 New Zealanders making hardship withdrawals in the past year, a total of almost half a billion dollars just to get by. Therein lies the concern that we hold around the required higher contribution rates. If people are struggling to get by at the moment, you kind of have to take a whole-of-economy approach."

A spokesperson for ACT said: "ACT's policy is for people who save, whatever they earn. Anyone with a bigger balance will gain more in dollars, but the gain as a share of their savings is similar across incomes. That's the same for any KiwiSaver policy focusing on shares of incomes or earnings."

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