KiwiSaver most benefits the rich

January 29th, 2008 at 7:23 am by David Farrar

Waikato University (yeah I know, try not to laugh) has done research that shows KiwiSaver will increase income inequality and most benefit the rich.

Now this is true.  Take for example a property investor whose company makes many millions per year.   He has a choice of paying the profits to himself as dividends or as salary (or a mixture of both). With inputted dividends it works out much the same eventually.

Now with KiwiSaver he has a real incentive to pay himself more in salary, due to the tax deductibility of the employer contribution.

You see if he pays himself $1 million a year, then he will put in $40,000 a year as the employer contribution.  Now normally that would attract 39% tax, which would be $15,600.  The millionaire has effectively just made $15,600 through reduced tax, thanks to KiwiSaver.  They also get the $2,040 of government subsidies also.

So Dr Cullen has given CEOs who earn $1 million a year a $17,640 tax reduction.  People should remember this if he ever attacks actual tax cuts as favouring the rich.

Now I actually support KiwiSaver. because it has many positive benefits.  But it is undeniable it helps the rich by far the most.  And they will be the ones that are already saving, so it may not increase the levels of savings but just restructure their current savings to take advantage of the tax credits and deductions.

No tag for this post.

54 Responses to “KiwiSaver most benefits the rich”

  1. Adolf Fiinkensein (2,903 comments) says:

    “…..but just restructure their current savings to take advantage of the tax credits and deductions.”

    Spot on David. That’s been my experience in the market place.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  2. barry (1,317 comments) says:

    Ummmmmm….

    Firstly, there are plenty of ways someone earning $1mill a year can reduce their tax, and…

    almost any system that is universal will benefit the high earners – its almost impossible to get around this without discrimination

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  3. iiq374 (262 comments) says:

    And they will be the ones that are already saving, so it may not increase the levels of savings but just restructure their current savings to take advantage of the tax credits and deductions.

    Research in Australia has shown that the reduction in Voluntary retirement savings is about $0.79 per $1 of increased compulsory savings. I would expect Kiwisaver to have a similar rate of attrition (which is to say the overall level will increase)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  4. David Coverdale (17 comments) says:

    Barry is dead right about the effect of most universal savings scheme in terms of nominal dollars, but…

    Do the numbers again in terms of percentage increase in retirement income, or in terms of improvements in quality of life, and you’ll find that the enhanced KiwiSaver has much greater real benefits for the less well-off.

    Which is as it should be.

    [DPF: I just hope that when National announce tax cuts you will condemn any Labour politicians who focuses on absolute tax saved rather than relative tax saved, and have none of this hysteria about how much more someone on $100,000 gets from tax cuts compared to someone on $30,000, so long as the % decrease is no greater]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  5. Rocket Boy (163 comments) says:

    Wow David great example, someone earning a million dollars a year, that covers about 0.001% of the population.

    I can’t wait to see what the figures look like for someone earning a billion dollars a year.

    [DPF: I am pleased to hear you say this doesn't matter. I presume this means that if National brings in tax cuts which give millionaires a lot more money, you will also be nonplussed and not see that as a problem]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  6. Manolo (13,840 comments) says:

    “Women, Maori, Pacific Islanders and those without qualifications will get a much smaller share than white, educated males, he said. “

    Life is unfair, isn’t it?

    So, if you happen to study and work hard and, later in life, reap the benefits of your efforts, you should nothing but feel ashamed of yourself and quickly donate the money to those who have less.

    Another useless academic joins the ranks of socialism.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  7. PaulP (150 comments) says:

    By paying himself $1m rather than taking dividends he is paying an extra 6% tax on $940k or $56,400 extra in tax so the kiwisaver saving only partially offsets this extra tax. This is the difference between the 39% rate and the 33% current company and trust rate.

    The restructure to pay higher PAYE salaries ain’t all that clever!

    [DPF: Paul - you know more about this than me, but if he is on 39% tax rate anyway, won't he have to make up the difference on the rate between what the company paid on inputted dividend and what he normally pays?]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  8. Monty (978 comments) says:

    Rocket – maybe there are only a small number of people earning $1m, but there are also a lot of people earning plus $100k, a lot of familes (Husband and wife teams) earn $200k, and those people will also benefit significantly as well.

    Besides according to Cullen anyone earning over $60,000 is a “rich prick and needs to be taxed at 40% in order for his marxist ideals to become a reality.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  9. Rocket Boy (163 comments) says:

    OK Monty, so why doesn’t David base his example on $100K or $200K or even $60K? Then the numbers might mean something.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  10. Monty (978 comments) says:

    I am not a mind reader – maybe because those on $1m are truely rich, while those of us on $200-300k are merely middle class.

    $60k is a joke (yet Labour considers them rich) and I would be surprised if a family man / woman on $60,000 would even have the spare cash to put anything into Kiwisaver. Personally I struggle to see how a person with say wife and kids in a metropolitian area with a couple of kids and rent / mortgage would struggle to have a life. Thanks Labour for a high debt society.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  11. Tane (1,096 comments) says:

    I am not a mind reader – maybe because those on $1m are truely rich, while those of us on $200-300k are merely middle class.

    $60k is a joke (yet Labour considers them rich) and I would be surprised if a family man / woman on $60,000 would even have the spare cash to put anything into Kiwisaver.

    Only 12% of people earn more than $60,000. People on $200-300k wouldn’t be more than a few percent of the population. Get some perspective bro.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  12. Grant (444 comments) says:

    12% of people or 12% of people in employment?
    G

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  13. Grant (444 comments) says:

    Make that “people”
    G

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  14. Buggerlugs (1,592 comments) says:

    Grant – you should know better than to ask Tane Tutae a question like that. It’ll be another figure he’s pulled out of his taxpayer-funded arse to justify his attempt at an artgument.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  15. Grant (444 comments) says:

    LOL buggerlugs
    G

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  16. Tane (1,096 comments) says:

    Grant, I understand it’s 12% of income earners, which means it’s even less as a proportion of the total population.

    My point is this – people on Kiwiblog who claim they’re poor on an income of $60,000 or $200,000 need to get some perspective. Most people struggle by on far less.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  17. Spam (588 comments) says:

    Only 12% of people earn more than $60,000. People on $200-300k wouldn’t be more than a few percent of the population. Get some perspective bro.

    Yes, but the number would be much higher if the top tax-rate cut-in at a higher number…. Look at the IRD figures on reported incomes, and see the spike at 59,999 – ie. in addition to the 12% on $60k or more, there are a crapload that are using shelters to limit their income taxed at the highest rate.

    In short – Cullen has us on the wrong-side of the laffer curve, and his lowering of the corporate tax rate without changing the personal one will make it worse.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  18. Insolent Prick (417 comments) says:

    Obviously, EPMU employees don’t struggle on far less. They have so much resources that their paid employees can spend all day blogging on union time.

    That’s all good, though, because it’s open and transparent. Unions are democratic organisations. Union members know what their levies are being spent on. Isn’t that right, Tane?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  19. Brian Smaller (4,023 comments) says:

    Tane – you said it. They struggle by. Thanks Labour for wasting years of opportunity to improve our wealth.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  20. burt (8,275 comments) says:

    Tane

    Only 12% of people earn more than $60,000.

    Utter crap Tane, as at end of tax year 2006 it was 11.6% of the working age population paying the rich prick tax. Working age = potential workers – when it comes to actual workers (people who actually pay tax – not potential tax payers) it was 17% as at end of taxb year 2006.

    What will it be by end of tax year 2008?

    I’ve posted this before on your blog and you have commented on it – not that I can prove it as you delete any comments that don’t agree with your world view.

    Stop being dishonest and face reality! It’s probably going to be 25% of the working population by the time budget 2008 is delivered – not that we will know because 2007 statistics will be used to hide the grim reality of how overtaxed we are.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  21. Insolent Prick (417 comments) says:

    Burt,

    Thank you for your message for Tane. Unfortunately he’s desperately trying to reconfigure his blog in a way that complies with the Electoral Finance Act he’s supported for the last twelve months. He will get back to your points as soon as he’s finished.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  22. Murray M (455 comments) says:

    Didn’t old fuckface Cullen state that the top rate would only affect 5% of taxpayers. Correct me if I’m wrong.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  23. Tane (1,096 comments) says:

    Hi Burt, thanks for that information, it’s not something I’ve looked into in any great detail myself.

    It still backs up my point – people who earn $60k plus are not poor, they are a small percentage of the population. Those on $200-300k a year are not ‘middle class’, they are very high income earners.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  24. Rocket Boy (163 comments) says:

    ‘DPF: I am pleased to hear you say this doesn’t matter. I presume this means that if National brings in tax cuts which give millionaires a lot more money, you will also be nonplussed and not see that as a problem’

    I was pointing out what a piss poor example you have used. As National are thin on the ground re policy and details of tax cuts can I assume from your comments that ‘Tax Cuts for Millionaires’ is going to be their policy and the rest of us will only get peanuts?

    [DPF: What if the tax cuts delivered benefits in the same magniitude as KiwiSaver? $15,000 for rich pricks and $2,000 for those on $30,000?]

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  25. Tauhei Notts (1,724 comments) says:

    Okay, I’m a a boring old bean counter but let me say that the 39% tax rate was the most stupid thing that Cullen ever did.
    I think it is only tax specialists that realise how incredibly dumb the 39% rate is. It has really changed the thinking of high income earners.
    The name of the game at tax is to pluck the golden goose. 33% was plucking good; some say too high but I say plucking good.
    39% is over the threshold so that people are out there buying BLOODSTOCK! to save tax. Any higher and they will be back buying poncy rabbits. And don’t laugh; I had clients save tax by buying poncy rabbits. They laughed when I told them the best way to save tax was to pay the accountancy fees invoice, twice.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  26. burt (8,275 comments) says:

    Tane

    People who earn $60K are not poor….. Well they are not rich pricks either are they. And they are not only the top 5% of earners either. Just one more Labour promise that failed to make it past the rhetoric stage. You support these liars – not surprising that you try and keep repeating the only 12% lie yourself.

    Give it up Tane, you might as well just come clean and tell us who you are – you know it’s going to come to a choice of STFU on your blog or expose your full name and residential address….

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  27. Tane (1,096 comments) says:

    Hi Burt, I’m not arguing tax rates here, I’m simply asking Monty and others I’ve heard commenting here to have some perspective.

    The fact that only 12% of working age people and 17% of wage and salary earners earn more than $60,000 backs up my point – they are demonstrably not poor. Furthermore, people on $200-300k are not ‘middle class’ – they’re very wealthy.

    All I’m asking for is some perspective, which I think is often lacking here when talking about incomes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  28. Rocket Boy (163 comments) says:

    ‘DPF: What if the tax cuts delivered benefits in the same magniitude as KiwiSaver? $15,000 for rich pricks and $2,000 for those on $30,000?’

    I have no problem with that, I think the most sensible approach to reducing our tax burden is to inflation adjust the tax thresholds and then to review these every two or three years. However I also think it is important for a government to continue to run a (small) surplus, not to cut spending on health and education and not to finance expenditure with debt.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  29. burt (8,275 comments) says:

    Tane

    The fact that only 12% of working age people and 17% of wage and salary earners earn more than $60,000

    AS AT THE END OF TAX YEAR 2006 – PERSPECTIVE….

    By the time budget 2008 rolls around that 17% is a two year old figure – you are not getting this are you.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  30. Tane (1,096 comments) says:

    Burt, I get what you’re saying. Now get what I’m saying. Those on more than $60,000 a year are a small minority of wage earners. Less than one-fifth. They’re not poor. Those on $200-300k are not middle class. They’re very high income earners.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  31. burt (8,275 comments) says:

    Tane

    So where is the Labour party policy to tax people hard who earn over $200K… Lets not confuse your argument with reality – the $60K threshold is a rich prick tax that scoops a whack of middle earners…. It should never have been implemented without a regular review cycle.

    Policies of envy in 1999 are killing the economy today.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  32. Tane (1,096 comments) says:

    Burt, I don’t have time to debate Labour’s tax policy right now. All I’m asking for is some perspective when people here talk about incomes.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  33. Kimble (4,440 comments) says:

    “small minority of wage earners. Less than one-fifth.”

    What other groups would Tane define as a small minority?

    Maori ~ 15% (This would be a TINY minority, wouldnt it?)
    0 – 14 yo ~ 22% (almost)
    65yo+ ~ 12%
    People describing themselves as New Zealanders ~ 11%

    If the number of people earning over $60k is so small, why are we constantly hearing lefties wank on about inequality?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  34. burt (8,275 comments) says:

    Tane

    All I want is some honesty about tax thresholds… From that comes perspective. Chicken and egg stuff dude. Now next time you quote the 12% I’ll be all over you again. Lies from people like you don’t help anyone to get perspective. Is this too much for a myopic partisan person to grasp?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  35. boomtownprat (281 comments) says:

    Some minorities are clearly more equal than others!

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  36. Tane (1,096 comments) says:

    Burt, the 12% figure has been bandied about by the right for a while now. It’s not like it’s something new that’s been made up. I do appreciate the information about numbers for actual wage earners though. Do you have a link for that info so I can do some further research at a later date?

    And yeah, the tax debate’s an interesting one too. I can see the argument for indexing thresholds etc, I just don’t have time to discuss it right now.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  37. burt (8,275 comments) says:

    Tane

    Un-Ban me from the standard for asking why the “blog host” box was red on the how a blog works thread and we can discuss it over there.

    Discussion on real issues will be novel for the standard and might help your credibility – over ot you !

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  38. Kimble (4,440 comments) says:

    How many more “too busy to post” posts is Tane going to write?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  39. burt (8,275 comments) says:

    Tane

    the 12% figure has been bandied about by the right for a while now.

    Since about the time it was quoted by Dr. Cullen in budget 2007. Only thing is he knew that;

    a) It was based on potential workers AND
    b) It was from tax year end 2006.

    It’s not my fault not eveyone understands the difference between potential and actual workers and that they repeat the distorted information provided by the minister of finance.

    Furthermore – if it’s repeated – that isn’t making it valid irrespective if it’s repeated by the left or the right.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  40. Tane (1,096 comments) says:

    Thanks for that burt. I had a chat to Irish and he’s happy to un-ban you if you’re going to be constructive. The real issue at the moment is the amount of abuse and spam we’re getting from a small and dedicated group intent on disrupting the conversation. We’ve always welcomed debate and discussion, it’s what makes blogs interesting.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  41. Chicken Little (741 comments) says:

    We’ve always welcomed debate and discussion, it’s what makes blogs interesting.

    Bahahahahahahaha

    Must be ‘make a funny’ day at the EPMU today.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  42. Chicken Little (741 comments) says:

    While we’re at it –

    a small and dedicated group intent on disrupting the conversation

    Hmmm

    Who does that remind me of?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  43. David Coverdale (17 comments) says:

    Me: Do the numbers again in terms of percentage increase in retirement income, or in terms of improvements in quality of life…

    [DPF: I just hope that when National announce tax cuts you will condemn any Labour politicians who focuses on absolute tax saved rather than relative tax saved, and have none of this hysteria about how much more someone on $100,000 gets from tax cuts compared to someone on $30,000, so long as the % decrease is no greater]

    By exactly the same token DPF, I just hope that when that criticism comes, you insist that we judge National’s tax cuts by the raw numbers, in the same way as you have done here in relation to Kiwisaver.

    And by the way, on the tax cut score the criticism is sometimes far more reasonable than that. How much utility around the country can you create for $1billion in tax cuts? It depends on who you give it too. The more you give to those who already have heaps of money, the lower the nationwide increase in utility.

    (Now I know – I know! – this statement of mine comes with all sorts of qualifications, caveats etc (as do any comments disputing it), and I’m not attempting to thread-jack with it. I simply point out that not all criticism of tax cuts comes from the perspective you mention.)

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  44. Mark (496 comments) says:

    Only on a left wing blog does someone get banned trying to disrupting the conversation.

    That’s if you disagree and not part of the collective borg.

    Tane and the rest of his pals have never ever tried tro thread jack DPFs comments section. Not.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  45. Kimble (4,440 comments) says:

    “I just hope that when that criticism comes, you insist that we judge National’s tax cuts by the raw numbers, in the same way as you have done here in relation to Kiwisaver.”

    The constant complaint from the anti-tax cut crowd is always that butting taxes by the same percentage for everyone, will leave the better off better off by recieving a higher amount in tax back. I think it is obvious that DPF was using their own argument against them.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  46. bubbsie (11 comments) says:

    Listen up guys, its all down to INFLATION… look at the rate of our dollar aganist the Rand !! We’re stuffed good and proper !!

    According to the police, when arrested Van Hoogstraten was in possession of US$37,586, 92,880 South African rand and £190, as well as 20bn NZ llars, worth around US$3,333 on the black market.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  47. burt (8,275 comments) says:

    Tane

    The test to see how dishonest the govt are is provided by KiwiSaver.

    Circa 380,000 people have joined KiwiSaver – a similar number to how many people were paying the rich prick threshold as at end of 2006.

    Is this number reported by the govt as 11% uptake ?

    I guess when we talk about KiwiSaver it’s valid to talk about salary and wage earners but when we talk about something like fiscal drag we distort the number by talking about working age people.

    This is the sort of BS that makes people distrust the govt and it’s the sort of stuff that makes partisan people look stupid for not thinking it through.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  48. PhilBest (5,125 comments) says:

    And all the government expenditure on tertiary education and student loan subsidies, what percentage of those taking advantage of these provisions are “rich” and what percentage is “poor”?

    Labour sure doesn’t represent the working poor as far as I can see, considering that our working poor are probably the highest taxed in the world, while a good bit of what they pay is recycled to those least in need of it.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  49. Paulus (2,633 comments) says:

    I wonder whether some of the commentators on this subject have missed the point.

    Kiwi Saver is right in principle but will be a disaster as it stands with so many Fund managers. The joining public would not know a good fund manager from a bad one, sadly. And they all charge fees irrespective of return, even negative.

    Having given one of the top default managers a considerable sum of retirement money to them to manage, over almost 8 years of totally negative returns to finally cash up 18 months ago having lost a third of my funds.

    I wonder if the savers are aware of the risk of minus returns. Your fund may be giving a negative return but fund managers still take their fee.
    Remember a 3% investment returns equals probably the amount that the fund manager will take

    In a year or two’s time there will be screams as people realise how much they have lost. This is being hidden by the Government one off subsidy – its only once.

    Incorporate, and graduate over time the “Cullen” fund AND MANAGERS, to each and every working (tax registered) persons personal fund – similar to Australia. Get rid of the too many fund managers. I hope that Kiwi Fund joiners will get regular updated returns (6 months at least) on their fund position and not months later by which time positions can worsen.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  50. Buggerlugs (1,592 comments) says:

    Burt –
    You’ve changed the subject. Tane Tutae won’t have got his talking points on that aspect yet. Hence the lack of reply.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  51. Brian (Shadowfoot) (80 comments) says:

    How many of those in $60K+ range are getting WFF?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  52. Waymad (136 comments) says:

    Chaps and chapesses, I think there has been a recent change to KS legislation (what? so soon? sigh…) which from memory restricts the salary-sacrifice aspect (which is what DPF is postulating) to below $104,000.

    And as for wages rates, from a leetle item I spotted in the Perth news rags a couple of months ago on a work jaunt there, you can earn $AUD 120K driving a mine truck in the Pilbara. The item was bemoaning the lack of takers for the jobs….

    Yet another reason to vote with your feet. Gawd, if I was, um, a few years younger, I’d be sorely tempted. And I’m a rich prick.

    It’s the old story: made popular by the Glorious Cuba meme a while ago: OK, if it’s so damn good, which way are the boats pointed?

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  53. Waymad (136 comments) says:

    Paulus: you have the ability to change funds. I use Gareth Morgan, who supply a Web-based real-time dissection of exactly where your hard-earned funds have been invested. Bugger, they invested me in Apple.

    That is, if IRD haven’t dropped your contributions into the “too hard to find a home for and who cares anyway, we’re public servants on salary” basket.

    It’s a competitive funds manager market out there, y’know. Shop around.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote
  54. Paulus (2,633 comments) says:

    Waymad

    I agree you have the ability to change fund and fund managers. Do you do this after you find out from your report how much you have lost or before??

    At least you have a fund manager who has put his name to it – a great guy, but faceless senior personnel at fund managers change places with great regularity, usual before their members see the results.

    Vote: Thumb up 0 Thumb down 0 You need to be logged in to vote