Tax cuts bring KiwiSaver into reach for many
The “I can’t afford KiwiSaver” excuse is about to get weaker for many New Zealanders. Tax cuts come into effect from October 1, and many families will also benefit from changes to the Working for Families tax credit and income threshold. The extra money will cover at least half of many people’s KiwiSaver contributions, sometimes more.
What’s more, further cuts are in store if Labour is re-elected. And while National hasn’t yet outlined its tax plans, it has promised bigger cuts than Labour.
Many people will argue that even with more money they still won’t be able to spare any for savings. But if you can possibly acknowledge that you’ve managed up until now, and put the extra cash into KiwiSaver before you get used to receiving it, you should be much better off in the long run.
It’s a pity not to get your share of the incentives in the taxpayer-funded savings scheme. And employees have to commit to contributing for only one year, while for non-employees there is no commitment.
Let’s look first at the tax cuts. The current tax rates are: 15 per cent on the first $9,500, then 21 per cent up to $38,000, then 33 per cent up to $60,000, and 39 per cent above $60,000.
The rates from October 1 are: 12.5 per cent on the first $14,000, then 21 per cent up to $40,000, then 33 per cent up to $70,000, and 39 per cent above $70,000.
Under Labour, the rates would drop again in April 2010 and again in April 2011, at which time they would be: 12.5 per cent on the first $20,000, then 21 per cent up to $42,500, then 33 per cent up to $80,000, and 39 per cent above $80,000.
What does this mean to you?
If you earn $20,000 a year, you’ll receive $12 more in the hand each week from October 1, rising to $22 a week from 2011 under Labour, and presumably more under National. In KiwiSaver, if you contributed 4 per cent of your pay, that would amount to $15 a week.
On $40,000, the first tax cut is $16 a week, rising to at least $26 a week by 2011. Your KiwiSaver contribution would be $31 a week.
On $60,000, the first tax cut is $16 a week, rising to at least $32 a week. Your KiwiSaver contribution would be $46 a week.
On $80,000, the first tax cut is $28 a week, rising to at least $55 a week. Your KiwiSaver contribution would be $62 a week.
Added to this are the Working for Families increases, which vary with income and number of children. Here are some examples of how much families with children under 13 will gain each week from the tax cuts and Working for Families changes:
- One earner on $45,000 with two children will get $31 more now, rising to at least $63 from April 2011. Their KiwiSaver contribution would be $35.
- Two earners on $45,000 and $20,000 with two children will get $43 more now, rising to at least $85 from 2011. Their KiwiSaver contributions would be $35 and $15. Perhaps one parent could join now and the other in a year or two.
- One earner on $35,000 with one child will get $16 more now, rising to at least $31 from April 2011. Their KiwiSaver contribution would be $27.
Chances are you don’t fit into any of these examples. You might want to wait and see exactly how much better off you are. But don’t wait too long. You may get used to spending the extra money instead of joining KiwiSaver.
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.