The Budget seems set to include tax breaks for workers - but only if they put the cash toward saving for their retirement.
There has been mounting speculation that Finance Minister Michael Cullen will unveil tax incentives tied to deposits in KiwiSaver accounts as he seeks to kickstart interest in the scheme, but he has jealously guarded the details.
However, NZ First leader Winston Peters - who is in a confidence and supply agreement with Labour - said incentives to encourage savings would be announced in the May 17 Budget and would be a step toward the compulsory superannuation scheme he favours.
He told TVNZ's Agenda programme on Saturday that the incentives would benefit the "great bulk of wage and salary earners who opt to be smart about this" - suggesting they would come with conditions. "Some of the good news in the Budget is that there will be a greater savings drive and incentivisation in this Budget and I'm pleased to say that at long last New Zealand is addressing a serious deficiency, a void in its economic planning for the first time.
"I think we should go much further, but nevertheless it's heading in the right direction."
Dr Cullen was in Australia and would not discuss what was in the Budget. However, he is thought to be considering a range of options to give momentum to KiwiSaver, which starts on July 1. Channelling tax cuts into savings would allow him to deliver them while minimising the inflation risk.
The Government has already announced plans to make employers' KiwiSaver contributions tax free to a maximum of four per cent of pay - instead of taxing them at 33 per cent as for other workplace superannuation schemes.
The scheme will see all new employees join KiwiSaver with an eight-week opt-out period. Those who stay in will save a minimum four per cent of their income, with a $1000 kickstart from the Government. KiwiSavers will also get $5000 after five years for a deposit on their first home, but other than serious financial hardship, that will be the only time they can make withdrawals before they retire.
There has been speculation the Government could offer tax incentives as radical as across-the-board cuts for every worker, say $10 a week, which would go to only those with KiwiSaver accounts and would be paid directly into them. That would cost about $1 billion a year.
However, National finance spokesman Bill English said that would be too close to a compulsory superannuation scheme, which Dr Cullen has shown little sign of favouring. He believed the more likely route would be to allow workers to deduct their KiwiSaver contributions from their gross income. That would mean a worker who earned $50,000 a year and saved $2000 would be taxed on $48,000.
But Mr English said that would benefit high-income workers and run contrary to Labour's philosophy
