I’ve worked out that $26,000 is the salary level at which the tax credit for Kiwi Saver (it is really a subsidy not a tax credit) gets exhausted. So if a staffer earns $26,000 or less they do not cost their employer if they are in Kiwi Saver. But once they earn over $26,000 the employer ends up paying more and more of their superannuation.
The maximum benefit for employees, in percentage terms, is at under $26,000. For every $1 you put in, the Government puts in $2. But in absolute terms the rich do better. Someone on $26,000 gets $2,080 a year from the Government into their Kiwi Saver. Someone on $100,000 gets $2,968 from the Government and $2,072 from the employer for a net gain of $5,040.
With Kiwi Saver I think the Government has done the same thing as it did with the Section 59 compromise. It has gone for the tactical victory, and overlooked the strategic implications.
I think Kiwi Saver will be quite popular. I also think uptake into it will be much higher than 50%. You have to be very very poor or very very stupid to turn down an up to 2:1 subsidy. And if people go into Kiwi Saver in their 20s, it will deliver to them in their retirement just as much money as government superannuation will. This is one reason I quite like it. The unilateral imposition of compulsory employer contributions without warning or consulation is the part which I don’t like.
But by making it so large, by making it as valuable as NZ superannuation, Dr Cullen has opened the doors to turn superannuation into a compulsory private savings scheme as Winston Peters and Roger Douglas have long advocated. Dr Cullen has set up the biggest privatisation in history.
It won’t happen under Cullen. It might not even happen in the next decade. But once you have almost all NZers in a Kiwi Saver fund, then it will be hugely popular to take the multi billion dollar Cullen Fund and hand it all out to NZers into their Kiwi Saver accounts. In 2021 the fund will be around $80 billion. Now whack $20,000 into the Kiwi Saver account of every NZer and it will not be unpopular.
Now will that mean one totally closes off public superannuation? Nope. The Cullen Fund was only going to fund 14% or so of it anyway. What one would do is just change it from being indexed to the average wage, to being inflation adjusted like other benefits. That will keep the level of superannuation the same in real terms but most people will receive much more from their Kiwi Saver account anyway, so the government super will just be an extra bonus or a top up.
So I think Dr Cullen will have a place in history. As the man who set up the privatisation of NZ Superannuation and the Cullen Fund!