This article was published on 3 November 2007. Some information may be out of date.


  • Why does the price of our milk rise when overseas demand goes up?
  • How and when to take a KiwiSaver contributions holiday — for children and adults.
  • Two Q&As on KiwiSaver tax credits and timing.

QLast month the price of milk increased by about 20 per cent despite the cost of production remaining more or less the same. We are told that this was because overseas demand for milk products has caused export prices to increase dramatically.

This is not the first time that this has happened, and most people must find it hard to understand why the price which can be obtained in overseas markets (for any product — not just milk) necessarily gives rise to an increase in domestic prices.

Can you explain in words of one syllable for ordinary human beings?

AI’m no expert — oops, that was a two-syllable word! — on milk is priced. But generally the price of anything is set by how the supply and demand interact.

Let’s start by assuming milk suppliers would like to receive as high a price as they can get, and they don’t care whether they sell to local or overseas buyers.

If demand for milk increases — whether from New Zealanders or foreigners — milk suppliers can put up their prices in all markets. While some people will buy less at the higher price, the higher demand probably means the suppliers will still find buyers for all they produce.

Over time, of course, non-dairy farmers might realise there’s good money in milk and switch into dairy. That would boost supply, perhaps to the point that not all milk was sold. At that stage, suppliers might lower their price, rather than not sell at all. However, a process like that might take several years.

In the meantime, the degree to which milk suppliers can “get away” with raising prices when demand grows depends on what’s called the price elasticity of demand.

Sorry. That phrase really breaks the one-syllable rule. It’s just a fancy way of saying that if a price rises, in some cases we will buy a lot less but in other cases we will continue to buy almost the same amount regardless.

Price elasticity depends partly on:

  • How easy it is to do without the product altogether. Many people would regard milk as more or less essential for their tea, coffee, cereal and so on.
  • How easy it is to get substitutes, and how good they are. If milk gets too expensive, many would turn to soy milk and other similar products, but some would turn up their noses at that.
  • How big an item it is in a family’s budget. For those who use only a small amount of milk anyway, a doubling in price would make little difference to the total food bill.

I suspect that milk is fairly price inelastic, which means that the demand won’t change all that much if the price changes. So we might be stuck with higher prices, at least for a while.

By the way, an easy example of supply and demand at work is strawberries. When there aren’t many around, they can be pretty expensive. But at the height of the season, when the supply is huge, prices tumble.

QIf we start a KiwiSaver account for a child, does this mean they must start 4 or 8 per cent deductions when they become wage earners or can they opt out?

A“Opt out” isn’t the right term. The government is using that term for people who are automatically enrolled in KiwiSaver when they start a new job and opt out after two to eight weeks.

A child — or an adult for that matter — who belongs to KiwiSaver won’t need to be enrolled again when they start a job as they are already members. Instead, they will simply have 4 per cent of their pay deducted — or 8 per cent if they request it.

If they don’t want that to happen and they have been in KiwiSaver for at least 12 months, they can apply to Inland Revenue — before or after starting the job — to take a contributions holiday. That can last for three months to five years, and can be renewed as many times as they wish.

Contributions holiday request forms are available at or by ringing 0800 KIWISAVER (0800 549 472).

If you do it by phone, Inland Revenue says it will take up to ten working days for them to tell your employer and notify you in writing.

“If you send a form in it would take longer as it needs to be received, processed and the notification sent out to you and your employer,” says the department. So it would be wise to start the process before starting the new job.

But if it turns out that deductions take place for a few weeks before the holiday starts, I wouldn’t worry about it. It won’t usually amount to a great deal of money. And that money will, after all, be in the KiwiSaver account. It’s not as if it’s lost forever.

Actually, you might want to encourage your child to just let the 4 per cent deductions happen. If they get used to that money coming out of their pay from the start, and keep up the habit through their life, they will end up wealthy in retirement.

QI am 64 years of age and have decided to sign up for KiwiSaver. When I filled in the forms at the bank I was told that I would not receive the full amount of the $1,000 kick-start as I had not signed up on 1 July.

Is this correct? Everything I have read about KiwiSaver mentions the $1,000 “gift” so I am nonplussed as to why I will only receive around $700. Is this something to do with the financial year being part way through?

If the bank is correct then I feel that the advertising for KiwiSaver has been misleading in this regard.

AYou’ll still get your $1,000. Either you or the person at the bank is confusing the kick-start with the so-called tax credit.

The kick-start is a simple one-off $1,000 payment given in full to everyone soon after they sign up for KiwiSaver, regardless of what month it is.

The tax credit — a payment of up to $1042.86 each year — is a bit more complicated.

Generally, your tax credit will equal the amount you contribute to KiwiSaver in a July 1 to June 30 year, up to a maximum of $1042.86.

But in your first year the credit is proportionate to how much of the July-June year you are contributing.

To make things a bit simpler, Inland Revenue looks at the first of the month in which you first contribute. So if you made your first contribution any time in October, they would assume you did it on October 1.

That means you will have been a contributing member for nine of the twelve months of the current July-June year, so your maximum tax credit is three quarters of $1042.86, or $782.15.

While employees have to contribute 4 or 8 per cent of their pay, non-employees can make a first contribution of any size and then not contribute again until next June, if they wish. Their tax credit clock will still start ticking on the first of the month in which they make that first contribution.

Note: There is an exception to the above rules for any employee or non-employee who joined KiwiSaver directly through a provider before October 1 of this year. For them, the start date is the first of the month in which they signed up for KiwiSaver, as long as they made their first contribution by October 31.

I suspect some people still don’t realize how all this works. They figure, incorrectly, that as long as they contribute more than $1042.86 any time in the current July-June year, they will get the full $1042.86 credit at the end of the year.

It’s important to get that first contribution in as soon as possible. For each month you delay, you miss out on a tax credit of up to one-twelfth of $1042.86, which is about $87. That’s a nice dinner for two.

QI am self-employed and want to enter a KiwiSaver scheme.

Legislation-wise, does it make any difference whether I make one annual payment of $1042.86 to the scheme, or do I need to make weekly payments of $20 or regular monthly payments of $86.67?

AAs a self-employed person, you can contribute whatever you want whenever you want, as long as your provider will accept it.

But, as noted above, in the first year you should get at least a small payment in as early as possible, to get the tax credit started.

After your first year, however, you can contribute the whole $1042.86 in late June if you choose. The tax credit will be the same as if you contribute weekly or monthly.


For more information on KiwiSaver, including different scenarios on when the tax credit starts, go to the KiwiSaver book page on [This page has been removed from the website. Visit for up-to-date information.]

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Mary Holm is a freelance journalist, a director of Financial Services Complaints Ltd (FSCL), a seminar presenter and a bestselling author on personal finance. From 2011 to 2019 she was a founding director of the Financial Markets Authority. Her opinions are personal, and do not reflect the position of any organisation in which she holds office. Mary’s advice is of a general nature, and she is not responsible for any loss that any reader may suffer from following it. Send questions to [email protected] or click here. Letters should not exceed 200 words. We won’t publish your name. Please provide a (preferably daytime) phone number. Unfortunately, Mary cannot answer all questions, correspond directly with readers, or give financial advice.