KiwiSaver Bill

Hon Dr MICHAEL CULLEN (Minister of Finance) Link to this

I move, That the KiwiSaver Bill be now read a first time. What it pleasure it is to move from sleazy allegations about the past, to the future of this country and the things that are important to the great majority of New Zealanders. I intend that the KiwiSaver Bill be referred to the Finance and Expenditure Committee.

The KiwiSaver Bill represents a landmark in social and economic legislation. Saving and investing is the foundation of the future wealth of our country and of us as individuals. KiwiSaver adds a new, important element in the savings landscape, providing a vehicle to encourage all working New Zealanders to set aside a portion of their earnings to fund their long-term income security.

It completes a set of measures that this Government has taken. First, when elected in 1999, we restored the cuts made to New Zealand superannuation by the previous National Government, consistent with its record of attacking superannuitants over its 9 years in office. Second, we moved to create the New Zealand Superannuation Fund to revive long-term stability for the basic State pension and remove the years of instability that had characterised the 1980s and 1990s. Third, we recognised the need for the Government to show leadership in providing workplace savings options, by introducing the State Sector Retirement Savings Scheme—like all other initiatives, attacked at the time by the Opposition but taken up by a far higher proportion of public servants than we had anticipated. Now KiwiSaver completes that picture, by providing easy access for all employees to a long-term savings scheme.

Like most Western nations, we have struggled to achieve high rates of participation in long-term retirement savings schemes. New Zealand superannuation provides a base level of income in retirement. It has always been clear that most Kiwis will have to top that up with their own savings in order to avoid a significant drop in income during retirement. The current savings environment provides little encouragement for New Zealanders to address the issue earlier in their working life. Many never develop a serious savings habit, and delay any serious attempt to save until relatively late in their working lives. KiwiSaver is an important factor in addressing that problem, not through compulsion or through distortionary tax breaks—both of which Mr Key now seems committed to, on the basis of a radio interview last night—but through a relatively simple mechanism of automatic enrolment.

KiwiSaver focuses on encouraging savings in the workplace, and that allows for deductions at source, provides benefits of scale, and reaches a high proportion of the population that is able to save. There are 6 features of the bill. First, the scheme tilts the playing field towards establishing a long-term savings habit. It does so through automatic enrolment when an employee starts a new job—for those aged 18 to 65. All others below the age of 65 may join KiwiSaver at any time—those in a job, and the self-employed. Contributions are deducted from pay by the employer at a default rate of 4 percent, or 8 percent if the employee elects a higher rate. Those who are not employed will be able to elect their own contribution rate in agreement with their scheme. The Government provides a start-up contribution of $1,000 per member—a flat rate—which, of course, is worth more for those on low to modest incomes than for those on higher incomes.

Second, the bill locks in savings for use in retirement. Savings are primarily for retirement, and funds cannot be accessed until the age of 65, or after 5 years’ membership of KiwiSaver, whichever is the later—except in the case of the purchase of a first home, serious financial hardship, or permanent emigration. In the case of death, of course, the savings become part of the estate of the deceased person. Members can stop contributions for up to 5 years at a time via taking a contributions holiday, with contributions resuming unless a further option to suspend is exercised. No contributions holiday can be taken until 12 months after joining KiwiSaver.

Third, KiwiSaver provides members with a choice regarding how their savings will be managed. Members can choose from a range of funds managers whose products qualify under the KiwiSaver scheme. There is a default option for those who do not choose a funds manager, and members can change between schemes at any time.

Fourth, KiwiSaver minimises compliance costs for employees, employers, and providers. Employers will deduct contributions from employees’ pay and forward them to the Inland Revenue Department, along with PAYE. Employers will be able to make contributions on behalf of their KiwiSaver employees via the Inland Revenue Department or direct to a scheme manager. The actual rate of an employer contribution will be a matter of negotiation between the employer and employee. Employers will be able to choose the preferred KiwiSaver scheme for their employees if they wish, and if the employees have not already chosen their own scheme. Employers with a suitable work-based registered superannuation scheme will be able to apply to the Government Actuary for an exemption from the automatic enrolment provisions. The Government contribution towards fees will be a flat dollar amount per member per annum, and will be paid into each member’s account.

Fifth, the bill provides for prudential oversight of schemes and allows existing fund managers to join. Although KiwiSaver schemes and products will not be guaranteed by the Government, as all existing products are not, KiwiSaver schemes will be governed by trust deeds and regulated in a similar fashion to registered superannuation schemes. A limited number of providers of default schemes will be selected by a competitive tender process, and calls for expressions of interest will occur shortly. Other providers will be able to offer KiwiSaver schemes if they meet a minimum set of criteria, including a requirement that the fees are not unreasonable. Existing registered superannuation schemes are able to operate independently of KiwiSaver, to convert to a KiwiSaver scheme, or to establish a KiwiSaver scheme within their existing scheme under their existing trust deed.

Sixth, KiwiSaver includes a mechanism to encourage homeownership, as an important element in long-term financial security. KiwiSaver will be linked to a new scheme to assist modest to middle-income families with a deposit for a first home. Those who are with KiwiSaver for a minimum of 3 years will qualify for a deposit subsidy of $1,000 a year, up to a maximum of 5 years, at the time of purchase of their first home. They will be able to draw down all their accumulating savings, except for the initial $1,000 start-up contribution. There will be conditions relating to the total household income of the applicants and the value of the house being purchased—the criteria are yet to be determined. The homeownership deposit subsidy will also be available to members of registered superannuation schemes if their employer is exempt from the automatic enrolment provisions.

Since the Budget 2005 announcement, the Government has engaged in extensive consultation with providers, employers, and consumer groups to ensure that the KiwiSaver scheme is robust and workable. That consultation has led to some changes to KiwiSaver. Those changes include clarifying how information about the allocated default schemes will be sent to new employees, extending the opt-out period for new employees from 3 weeks to 6 weeks in order to enable employees to seek financial advice, extending the minimum period before a contributions holiday can be taken from 3 months to 12 months, and providing existing registered superannuation schemes with an option to establish a registered KiwiSaver scheme within their existing registered superannuation scheme under the existing trust deed.

The Government intends to have the KiwiSaver scheme up and running by 1 April 2007. That would require the bill to obtain royal assent by early October, in order to ensure that providers of default schemes have around 6 months from their appointment time to be ready for the scheme to commence. That means that tenders to select providers of default schemes will occur in parallel to the select committee process, and those providers will be appointed after the legislation gets the royal assent in order to meet obvious constitutional objections to anything untoward occurring in that regard. We anticipate perhaps some 25 percent of eligible people will take up enrolment within some 5 years of the start of the scheme. There will not be an initial surge impact in terms of the housing market, because no one will qualify for the deposit subsidy until 1 April 2010.

The KiwiSaver scheme has been warmly welcomed by the savings industry, and supported by a range of business groups. It is supported by a number of parties in the House for discussion within the select committee. The only significant group in the country that has condemned the scheme has been the National Party. I am happy to stand with the great majority of Kiwis who dream of owning their own home and dream of having a secure retirement—not having made millions of dollars in financial market speculation as a means of buying their own retirement provision.

JOHN KEY (National—Helensville) Link to this

The fact that the Minister of Finance has to revert to those kinds of comments on a bill like the KiwiSaver Bill shows me just what pressure the Minister is under and how extreme it is. I think that shows he is at the end of his career, and he is saddened, unfortunately, to be overseeing not only a collapse in confidence in his Government but also at having to be the one who picks up the pieces for Minister after Minister who fail him and his Government.

Hon LIANNE DALZIEL (Minister of Commerce) Link to this

I am glad that nobody has to rely on that speech to understand what the KiwiSaver Bill is all about. I bought one of my nieces a piggy bank for Christmas because I thought it was important to get young children thinking about saving. That caused my sister and me to reflect on the days of the Post Office Savings Bank books that we all had as schoolchildren, with the squirrel on the cover putting money away for the future. What a great message we had as children! I believe that KiwiSaver is about starting that message again—not with children but with the parents of those children, to have them thinking about saving for the future. That is why I endorse the comments made by the Minister of Finance. Saving and investing are the foundation of the future wealth of New Zealanders as individuals and as a country.

Although New Zealand superannuation provides a base level of income, middle-income New Zealanders have to provide for their own savings to avoid a potentially significant drop in income during retirement. We had that fear factor all the way through National’s period in Government in the 1990s, when it threatened every tenet of the Superannuation Fund that Michael Cullen had to establish in order to preserve our future. KiwiSaver helps people to change their long-term savings behaviour. KiwiSaver aims to increase the well-being and financial independence of individuals, particularly in retirement. KiwiSaver is designed to complement New Zealand superannuation for those who wish to have more than a basic standard of living in retirement.

I have been actively involved in the development of the KiwiSaver legislation that is before us today, both as Minister of Commerce and Minister for Small Business. From my perspective as Minister of Commerce, I see KiwiSaver as an important mechanism to help New Zealanders to save more for their retirement. It will also change the way that many superannuation schemes currently operate. In this way, it will provide a real opportunity for scheme providers, and strengthen the market for superannuation in New Zealand. I am surprised the National Party does not see the benefit in that.

I appreciate that there are currently a number of effective employer-based superannuation schemes that employers choose to offer their employees, and I commend the employers who have already taken active steps to assist their employees in their provision for retirement. We do not want to shut down those or any other current retail schemes with the introduction of KiwiSaver. Rather, our objective is to enable them to continue to operate outside KiwiSaver, or to facilitate their transition to the KiwiSaver environment. This is achieved through several provisions in the bill. An existing registered superannuation scheme will be able to fully convert to a KiwiSaver scheme with the consent of all of its members. Those members would then become members of the KiwiSaver initiative. A scheme can also partially convert to a KiwiSaver scheme by creating a KiwiSaver section within its current scheme. Members of the scheme can then decide whether to stay in the existing scheme or move to the new KiwiSaver section. Employers with existing registered superannuation schemes that meet minimum requirements can seek an exemption from the requirement to have their new employees automatically enrolled in KiwiSaver. Employers can also choose any registered KiwiSaver scheme to be the scheme that their employees are allocated, if they decide not to make their own active investment choice.

In the design of KiwiSaver we have also been concerned to reduce the risk of small balances occurring, and, when they do occur, to minimise the impact of those small balances on KiwiSaver providers. That has been achieved through the Government making a $1,000 upfront contribution to all KiwiSaver accounts, the Government contributing towards each KiwiSaver member’s fees, the requirement that members must contribute for a minimum of 12 months before they can take a contribution holiday, and an exemption from the providers’ requirement to provide annual reports to members where a member’s account has been inactive for at least 2 years.

Another important aspect of the framework for KiwiSaver products and providers is the protection of investors in KiwiSaver schemes. Where possible, the bill has leveraged off existing regulatory systems to provide adequate disclosure and protections for investors. This includes ensuring that existing disclosure requirements in securities legislation apply effectively to KiwiSaver schemes, and, in particular, ensuring that employees receive investment statements for the default scheme that they will be allocated before they are required to make a decision whether to opt out of KiwiSaver.

Schemes will be regulated in an equivalent way to existing registered superannuation schemes, but with additional KiwiSaver requirements such as lock-in of funds; permitted withdrawals, for reasons such as housing, serious financial hardship, and permanent emigration; transferability between schemes; an independent trustee; and a requirement that fees not be unreasonable. And the Government Actuary will register and monitor KiwiSaver schemes on an ongoing basis. There will also be specific requirements for those KiwiSaver schemes that wish to be default schemes—schemes that employees are allocated by the Inland Revenue Department when they do not make their own choice of provider. Those schemes will be selected through a commercial tender process that will run alongside the legislative process.

From my perspective as Minister for Small Business, I have also been particularly concerned to ensure that KiwiSaver does not place unnecessary additional burdens on employers, particularly small employers. KiwiSaver is primarily a scheme to facilitate work-based savings. That is because making deductions at source, straight from wages—almost without people noticing them—is the simplest and most effective way for people to overcome their inertia and start to develop a savings habit. The introduction of a work-based savings scheme will, however, inevitably have some impact on employers. Various aspects of the design of the scheme have enabled us to minimise those impacts as much as possible, while retaining the advantages of a work-based scheme. Information and payments that employers need to provide to the Inland Revenue Department will be transmitted through the existing PAYE scheme. The Inland Revenue Department will facilitate matching transactions between the member and the provider. For example, there will be no need for employers to confirm an employee’s current KiwiSaver provider, if he or she is an existing KiwiSaver member when starting a new job. The Inland Revenue Department will ensure that the contributions are sent to the correct provider.

The legal risk for employers has been mitigated through provisions in the bill that clarify that an employer will not be liable as a promoter of a KiwiSaver scheme by simply complying with the Act, or choosing a preferred KiwiSaver provider. Employers will also not be liable as investment advisers if they simply pass on factual information to employees about the KiwiSaver scheme. I was very concerned to ensure that the bill would not be an additional burden on small employers, in my role as Minister for Small Business, and I am very pleased that we were able to contribute to the design of the scheme in order to minimise the impact in that way. In addition—and I think it is worth remembering—a payroll subsidy has been made available to small businesses that use a payroll intermediary, and that is something that will reduce some of the burden that the PAYE system imposes on small business, and will thus also benefit those employers when KiwiSaver is implemented.

We certainly have worked hard to achieve the idea of having an efficient and effective model for the implementation of KiwiSaver. Building long-term savings habits will be of benefit to all New Zealanders, and KiwiSaver is an important part of the Government’s efforts to encourage these. I commend the bill to the House. I believe that it says a lot about a wonderful future for our nation, because it is about encouraging the kinds of saving and investment that will take us into the future. I do not believe that anyone who does not take seriously saving and investment for the future of this country has our country’s interests at heart.

Dr the Hon LOCKWOOD SMITH (National—Rodney) Link to this

National does not condemn the Government for exploring how to improve the savings record or the savings progress of New Zealanders. We support the notion that it is in New Zealand’s interests that its people save more. But the central problem with this bill, with this Labour Government’s approach, is: how does Dr Cullen expect people to save more money when, as they earn more money, he taxes them more and more? That is what is happening. Look at the tax collected from Kiwis in the year before Dr Cullen came to office. In the last year that National was in office the Government collected $30 billion in tax revenue from New Zealanders. This year Dr Cullen will collect $46 billion. The figure has gone from $30 billion to $46 billion in just 6 years. In just 6 years the tax taken from Kiwis has gone from $30 billion to $46 billion. That is a 50 percent increase. The population sure has not gone up 50 percent. The working population to pay that tax has not gone up 50 percent. So how does Dr Cullen expect New Zealanders to save money, when as they earn more money and go into higher tax brackets, Dr Cullen taxes them more, and continues to tax them more? As we look ahead, he will continue to tax them more.

I have news for Peter Dunne. His increases in the tax thresholds are well and truly dog tucker. Dr Cullen has made that very clear. The other day at the select committee—and these are not exactly his words—the message he gave was that the public should not take any notice of Peter Dunne and that they should listen to him; that he was the Minister of Finance and the buck stopped with him; the public should listen to him. That is a little message for Peter Dunne.

But the issue is serious. How does Dr Cullen seriously expect New Zealanders to be able to save money when, as they earn more money, he takes it in tax? Of course, that is why the after-tax income of New Zealanders has not increased much under this Labour Government. Wages have gone up, sure, but the amount New Zealanders are paying in tax has gone up and the amount New Zealanders have left in their pockets has not gone up. Hence, to make ends meet, people have had to borrow more, and “dis-savings” have been going on. But it is part of the problem of overtaxation. If Dr Cullen is serious about New Zealanders saving more money, a far more effective way to do that would be to ease the tax burden, especially the marginal tax rates, on New Zealanders.

The extent to which Dr Cullen and this Labour Government control ordinary families’ net incomes is staggering. I would love some of those members opposite, like David Cunliffe, to sit down and calculate the net incomes of families. Let us say that a low-income family is trying to make a better life for themselves—it might be a sole parent trying to get off the domestic purposes benefit. One would have to calculate the impact of their work and the PAYE they pay; the domestic purposes benefit they are paid, and the fact that as their income goes up there is an abatement of their domestic purposes benefit; the family support tax credits and, as their income goes up, the amount that that abates; the in-work payments as their income gets a bit higher, and the amount that abates; and the extra tax they have to pay, because the domestic purposes benefit is paid on an after-tax basis. We have to gross it up and work out the extra tax, then finally work out the net income of that family as they try to earn more money—which they will have to do if they are going to save. Dr Cullen and the Labour Government are controlling that.

Some families with small children must double their hours to increase their income significantly. Our lower-income people get to keep only a tiny percentage of that income. Over a certain income in a low-income range, a family could double its income and get to keep $1,000 of it. They could take their earned income from $10,000 to $20,000 a year and keep only $1,000. They would be only $1,000 better off at the end of the year. I do not believe that any of those Labour members opposite have ever sat down to think about that. I suspect that good people like Hone Harawira even are staggered to hear that kind of thing, because many Māori families are caught up in it. Dr Cullen is in a dream-world if he thinks that this “baubles” tax bill will appeal to New Zealanders. Labour got Winston Peters sucked in with baubles, and they think that a KiwiSaver scheme with a few baubles in it will suck in ordinary New Zealanders. Ordinary New Zealanders are not as stupid as the Rt Hon Winston Peters. It will not work.

I was talking a moment ago about low-income families. I invite members opposite to nominate the sorts of families that will put money into the KiwiSaver scheme, and what kinds of income they will have. Mr Cunliffe may nominate the income, and I will tell him the marginal tax rate that that family will face. Mr Cunliffe may tell me the family size and the income, and I will tell him the marginal tax rate that they will have to pay on the next dollar they earn. I will tell the member that from ordinary income from, say, just below average—about $30,000—up to $100,000 the Government takes more of their next dollar earned than they get to keep. I tell members that right the way through that income range—from $35,000 to $100,000 of income for a three-child family—the Government takes more in tax of the next dollar that the family earns than the family gets to keep. The Government takes more than the family gets to keep, and when I say more I mean more—that Labour Government, under Dr Michael Cullen, takes more than 50 percent of the next dollar earned over that income range. How can we expect that family to save money? Where is the opportunity to save money?

A lot of people would like to save money. People realise that saving money for their retirement is a good thing. But how do we expect them to? In some ways, the bill is an insult to good, hard-working New Zealanders, because it treats them as fools. It shows no recognition of the realities that ordinary, hard-working New Zealanders are grappling with. Often, the age group that this is targeted—our working-age population—is the one with dependent children, and 90 percent of the age group are caught up in those kinds of tax rates that I spoke of. Those people who think that families only face the marginal tax rates of our basic income tax structure are simply wrong. Those families face tax rates miles higher than that. The bill is targeted at our working-age Kiwis. But they are the people with dependent children. They are the people from whom the Government takes more than half the next dollar they earn. The bill is an insult to them, because it does not recognise that it is not that they do not want to save; it is that they cannot save. They cannot save and also provide the education they want for their children, because their children need the money spent on them today. They cannot save for their future as parents, because, as good parents, they are providing for their children today.

One thing is certain, the scheme is not going to work. If one looks at the State sector superannuation scheme, which the Government subsidises much more, dollar for dollar, one can see that there is a 50 percent take-up. My good colleague John Key mentioned how Ireland has tried the scheme. What was the percentage?

R DOUG WOOLERTON (NZ First) Link to this

New Zealand First will be supporting the KiwiSaver Bill because we have long agreed with incentivised savings, no matter how big or how small. I personally agreed absolutely with Lianne Dalziel when she said that one is missing the point if one goes to the technical aspects of the bill and ignores the ability of the bill to change behaviour.

It saddens me somewhat—and I am not one for criticising other parties—to hear Mr Key say that National accepts that there is an aging population, that we do not have a good savings record, and all those sorts of things. Then I heard Mr Lockwood Smith going on about tax. I have lived through—and was a participant in—the days when the National Party’s mantra was that the free market would fix everything, and that if we would just sit back, get rid of all the Government institutions, and leave it to business, then everything would be all right. That mantra did not work then, and it has never worked. Today the mantra we are hearing is: “If you cut tax everything will be fine. Leave it in the hands of the wealthy, and everything will be all right.” Well, it will not work in that way any more today than the so-called free-market mantra worked all those years ago.

One of the essential things in society for a Government to do is to send messages. If a Government is intent on sending messages, it will also be intent on making sure those messages have something of a monetary nature to them. That is why we fine people who speed, that is why we fine people who do wrong, and that is why, ultimately, we put those people in jail—but we often find that jail does not work as well as a financial penalty. So it saddens me that the argument for and against the KiwiSaver scheme degenerates quickly, in my opinion, to one of technicalities. It is not about that. It saddens me that Mr Key, who is a respected expert in the financial markets—and I personally do not have a problem with that; I respect his expertise and all the things he has done in a remarkable life so far—cannot accept that one does not have to be a financial expert to understand what is going on with this scheme.

If we go down the road of analysing everything, as a financial expert is wont to do, we will miss the essential message that needs to go out to the other 90-odd percent of New Zealanders—and that is what the KiwiSaver scheme is about. I remember when I was in the National Party that there was a little blue membership book. The party probably still has it; I hope it does. It talked about a property-owning democracy. Is it still there?

CRAIG FOSS (National—Tukituki) Link to this

I am opposed to the introduction of this bill. Quite frankly, I think it is typical of an administration that has lost touch with reality, that is trying to grab back an agenda, and that is trying to get on the front pages of the paper for perhaps what it believes is some good news rather than for the reasons that it may be in the paper or on the TV news currently. Perhaps the resources, the time, and the energy spent in preparing this bill would have been better spent with an examination of what was not working in the New Zealand economy. To put it more simply, why on earth are 600 New Zealanders per week leaving New Zealand for Australia, permanently? No one seems to be addressing that question. This type of policy will actually increase the numbers of those moving to Australia.

This KiwiSaver Bill was part of a suite of pledges that appeared on the Labour Party election pledge card, which incidentally is also the subject of an investigation by the police; to that, I simply say: “Pay it back.”

The proposal in this bill, in my eyes, is typical of socialist thinking. I am sure that Mr Cullen, like all socialists, has the best of intentions in mind. He is looking to achieve the best for his country—I am sure he is. But also like all socialist policy, once those ideals are confronted by reality and meshed with the real world, they fail. We have a shambles of compliance, band-aid papers, emergency policies, all sorts of changes to legislation, and of course, a further decrease in our country’s productivity.

I believe that it is ironic that this current Labour Government has committed over $2 billion in asset write-offs and maintenance of a student loan scheme—an interest-free student loan scheme—that is targeted at school leavers and encourages them to take on debt, yet, at the same time, it is spending $700 million over 5 years on a scheme that supposedly encourages those same people to save. The total cost of those two schemes is over $3 billion, yet they cancel each other out—one encourages to borrow more, and one to save more—and they are targeting the same people. It is absolutely nuts. Members opposite still believe that there is no room for tax cuts or more efficiencies in the Government books.

I believe that like many of the other pledges on the Labour Party pledge card, this bill is not named correctly. The Working for Families package, as we know, should be renamed “Welfare for Families” package. The interest-free student loans package should be renamed the “State Asset Free Give-away” package—$1.5 billion at last count. This KiwiSaver proposal I believe should be renamed the “Increase the Cost of Entry-level Housing by $5,000” package. Because quite simply, those who try to enter the first-home market will find that the price of the house, funnily enough, will start to nudge up by the amount that they have on deposit, regardless of the fact that the credit card has probably been racked up three or five grand.

The explanatory note of the bill states that essentially New Zealanders are not saving enough. My colleagues and members opposite have addressed this, and are not particularly arguing to that, but my point is that this is not just a savings problem. New Zealand does not have just a savings problem. We have a productivity problem, and at its worst in the public sector. We have a social welfare problem that is destructive and poisonous to those in our next generation. We have an over-taxation problem, we do not have just a savings problem. We have a drain to Australia of our brightest and best—problem! We have a Resource Management Act and infrastructure problem. This KiwiSaver Bill will not address or fix any one of those issues.

The underlying reason for the lower savings ratio that Mr Cullen thinks is not right in New Zealand is quite simply, as my colleague Lockwood Smith just said, that New Zealanders do not have enough spare cash. There is no money left after the bills are paid, and after the mortgage is paid on the higher floating and fixed rates that are now coming through the system. New Zealanders’ after-tax incomes are an absolute disgrace. It is no wonder that workers are going on strike. It is no wonder that workers are striking for higher after-tax incomes. One cannot tell me that this is good for workers and their well-being, because this was an election proposal, which is now about 5 or 6 months old.

Workers are striking, or proposing to strike, to try to catch up and at least get some decent living wage so they can scrimp, maybe save, pay off their own debt, pay off their mortgage, buy some decent food, and pay for their petrol or electricity. Perhaps they have just heard what their Aussie mates are getting across the ditch for the same work.

Just keep an eye on those same unions, keep an eye on those strike dates and proposed dates if Mr Cullen’s pay-roll tax comes in and totally devastates New Zealand’s labour-intensive industries. Again, it is socialist dogma hurting those that it is supposed to protect the best in the first place.

My colleague Lockwood Smith earlier pointed out that the Labour Government, over this past financial year, has taken in $16 billion more in the way of tax than in the year 2000. That is why New Zealanders are not saving. That money has been whipped—“pick a pocket or two”—by Mr Cullen for his taxes, surcharges, levies, local government charges, and whatever it might be.

HONE HARAWIRA (Māori Party—Te Tai Tokerau) Link to this

It looks like “here we go again”. The KiwiSaver Bill is a good idea. Unfortunately, though, it has been designed by people who are divorced from the reality of those it is supposed to support, particularly the whānau of the working poor and the families of beneficiaries. Now, it comes before us for consideration, which is a bit of a joke, really—when our individual tax bills are bigger than the annual income of 50 percent of the nation.

Let me say firstly that the Government is to be commended for its efforts to set up a workplace scheme to encourage people to sign up to long-term retirement savings, with the offer of a $1,000 Government sweetener to get things rolling. The ability to use KiwiSaver savings as a home deposit is also a positive step in encouraging workers to save for their own homes. The Māori Party supports the thinking behind this bill, because it aims to help whānau become financially secure and self-reliant into the future. But while the Government in its bumbling, flip-flop way is trying to encourage people to save, this bill sadly will not address the issues faced by low-income families.

Yesterday I quoted Nelson Mandela. He said that a political movement must keep in touch with reality and the prevailing conditions. Mandela also said, in referring to poverty: “It should never be that the anger of the poor should be the finger of accusation pointed at all of us because we failed to respond to the cries of the people for food, for shelter, for the dignity of the individual.” The rights to food, shelter, and human dignity are determined by people’s access to those rights. In this country that access is determined by the income or the wages that people receive, and it is that low level of income that we need to focus on in consideration of this bill.

The bill sets at 4 percent the threshold for getting into the KiwiSaver scheme. That is a real problem for those on low incomes, and particularly for low-income working families. We note here that for a young family with the breadwinner on a minimum wage, it would mean a drop in wages that that family simply could not afford. We note that with a 4 percent threshold the bill also makes it impossible for beneficiaries to join the scheme, and given that Māori unemployment is three times higher than that of the general population, Māori will be doubly penalised.

We suggest that the initial $1,000 sweetener will soon lose its glow. In terms of the home deposit, there are also issues that need to be addressed. One of those is that the home deposit will be available only after 3 years. That is a long wait for families whose living conditions are not likely to be the best, anyway. Another issue is that there is no scope to increase the Government commitment based on family size, which means inequitable delivery to low-income young families. Furthermore, the fact that only 3,000 households a year can qualify for the home deposit, limits the potential to lift people out of poverty.

With the continuing rise in house prices, it is unrealistic that a family on a weekly income of $290 can service a $200,000 mortgage. When Westpac can get fail-safe mortgages from the Government while ordinary workers have to bust their backsides to pay every cent or get booted out of their homes, we really do have to query where the Government’s priorities lie. The Council of Trade Unions also points out that while house prices have rocketed up over 50 percent in the last few years, wages have sputtered along to a pathetic 8 percent over the same time.

One of the Māori Party’s key concerns with this bill is that, quite simply, it discriminates against Māori. The facts are that Māori just do not live past 65. That means that although Māori, like everyone else, will be encouraged to join the scheme, fewer than 4 percent of Māori will live long enough to derive any benefit from it. That is simple discrimination.

If this House is serious about helping the Kiwi saver, we also need to get a clear picture of who that Kiwi saver might be. The Social Report 2005 noted that the state of being for Māori and Pacific Island people in health, economic standard of living, and education is poor, particularly in areas like Northland and Gisborne, and the report criticised the action taken to reduce those inequalities, as well. This House also needs to be aware that the UN rapporteur, Professor Rodolfo Stavenhagen, during his visit here last year was critical of the lack of quality data to identify disparities for Māori. As Māori Party co-leader Tariana Turia told this House last night, if we do not have the right data we cannot properly target our social policy. In terms of that data, we know that wage levels for Māori and Pasifika are considerably lower than for Pākehā. Māori and Pasifika have difficulties with housing affordability and overcrowding. Polynesians also figure highly in unemployment statistics. Many Polynesians, both Māori and Pasifika, will struggle to participate in the KiwiSaver scheme.

The Māori Party also has a number of other concerns with this bill. We are concerned, firstly, that yet again society’s underclass will be bypassed because, as with the Working for Families package, the KiwiSaver scheme will exclude beneficiary families. Secondly, this bill will not change the child poverty that ravages this country. A poor child born today into poor housing will already have passed his or her most formative years before this bill has any impact on society. Thirdly, despite the fact that more than 250,000 children in Aotearoa are living below the poverty line, this policy has no child-impact analysis, at all. Fourthly, the Government will not guarantee the KiwiSaver scheme and, again, the risk will be taken by the poor worker. Fifthly, low-income families may get sucked into what might look like a worthwhile scheme, when in fact limited finances might best be spent on food, mortgages, and kids. Sixth, the record of managed funds suggests that KiwiSaver returns may disappoint those being asked to invest their hard-earned money. The seventh point is that the number of low-income families relying on food banks is still rising, and the eighth is that commitment from employers may be too high an expectation for small businesses. If we really want to lift the game, this bill will not do it in its current form.

But the Māori Party is nothing if not helpful, and we have a few suggestions that we would like to put forward. We should, first, raise the minimum wage to make the scheme more feasible—$12.50 is a good start; second, introduce legislation to limit the capability of loan sharks to terrorise communities of the poor, and reduce the easy access to credit for low-income earners; third, reintroduce savings schemes to encourage children to learn to save, and introduce budgeting education into schools; and, fourth, give those with a lower life expectancy the entitlement at an earlier age.

In closing, I say that the Māori Party supports the thinking behind this bill, because it aims to help whānau to become financially secure and self-reliant into the future. But we will not be supporting it during this first reading, because the negatives far outweigh the positives. However, we will do our best during the select committee process to ensure that the concerns we have raised—the concerns of the people we serve—are met.

GORDON COPELAND (United Future) Link to this

Since I spent my Budget Policy Statement speech yesterday criticising the Government’s big-spending plans in no uncertain terms, I would like to begin this speech by congratulating the Government, and Dr Cullen in particular, on the KiwiSaver initiative. I was asked a couple of years ago by a leading businessman why United Future was working with the Labour Government, and whether I was proud of anything Labour had done in recent years. Let me give credit to Dr Cullen and the Government for the New Zealand Superannuation Fund and the Working for Families package.

I would like to say to members of the National Party that when they, without any intellectual rigour whatever, label 193,000 working families who receive considerable tax relief under the Working for Families package—some 65,000 to the point where they pay no tax at all—as welfare recipients, they insult those people, and they will pay a heavy price at the next election if they keep going down that road. If we apply that logic, then under National’s own tax reduction plans we could say that everybody in this country would become a welfare recipient—it is nutty, and National members should stop saying it.

As I mentioned, I congratulate the Government on the KiwiSaver initiative. United Future backed all three of those Government policies because it is our conviction that they are good measures for New Zealand, for its families and its elderly, both now and, importantly, in the longer term and into the future. Of course, United Future would like to see the Working for Families package complemented and completed by income splitting for couples with dependent children. As I mentioned this afternoon, we also have some reservations and questions about KiwiSaver. But I set those aside for the moment and look at the big picture, and we are delighted to give our support to the first reading of this bill.

New Zealanders need to save more. Perhaps more important is the fact that New Zealanders need to get back to a precise saving ethic. I must say to the previous speaker from the Māori Party, Hone Harawira, that one of the things that we did during the election campaign was to speak to some Māori in Ōpua, and they agreed strongly that there is a need to get back to a good saving ethic in this country.

SUE BRADFORD (Green) Link to this

The Green Party supports this bill, although we are aware that it can go only a small way towards solving New Zealand’s savings deficit and the difficulties that so many have in putting together a deposit for their first home. New Zealand superannuation is, and should remain, the bread and butter of our retirement income. For many people, saving for retirement is difficult, and for many others, it is impossible, and no single system or scheme will solve the underlying problems.

The first and very obvious difficulty, which several colleagues have already referred to, is the simple fact that so many people are not on incomes high enough for them to pay even their basic living costs. Income inadequacy and job insecurity are major stumbling blocks to developing the kind of savings culture that Dr Cullen would like to help increase in this country.

To address the stumbling block, we need a whole range of measures, including raising the minimum wage. As members are aware, my youth rates bill, the Minimum Wage (Abolition of Age Discrimination) Amendment Bill, is currently before the House, so the Greens are working hard on trying to lift minimum wages for young people. We also support the efforts of other parties to try to lift our minimum wage to at least $12 an hour as soon as possible, and would like to see the Government bringing that measure forward a lot sooner than the planned 2½ years out—if we are lucky. We want to see an economy in which more New Zealand workers do earn a sufficient income, such that they can make saving for retirement a practical reality. Unless minimum wage rates are addressed, any scheme to encourage savings will have only very limited success.

For years the Greens have been challenging the Government and employers to get serious about workplace savings schemes for those who can afford to save. Our colleague Rod Donald last year talked about the KiwiSaver scheme in a speech at the Association of Superannuation Funds of New Zealand national conference, when he said it was high time for upfront incentives to give workers the encouragement they need to save rather than spend. The Government’s KiwiSaver scheme is a response to that call, and we commend it. But it does have flaws.

The scheme remains out of reach for far too many people, not only for low-income wage earners but also for the many people now who have large student debts. This is a serious flaw, as those groups are the ones most likely to have almost nil, or few, assets and to suffer real financial difficulties when they retire. Those are the groups that need the most assistance, and they will not necessarily get it through this scheme. For those who can save, we are pleased to see the $1,000 Government contribution sweetener as a genuine incentive for people to save for the jam they would like to have to go on top of the New Zealand superannuation bread and butter.

The scheme has two other added benefits. It is a first home buyer’s scheme, and any impact it may have on lifting our national savings rate would, therefore, help to address our chronic current account deficit. From my work in the housing area, I am well aware that our rates of home ownership are declining by the year. Anyone who has looked at the housing market lately, even though it is in a so-called plateau, will know that trying to address that gap for a home deposit is almost impossible for an increasing number of people. The small amount of money that will come from the scheme will help, but when one looks at the price of houses—even in low-income and rural parts of the country—one sees that it is still just about an impossible feat.

We need to keep looking at giving workers a serious incentive to save, such as deducting superannuation contributions before PAYE. Incentives need to be more attractive. At June 2005 there were only 243,970 employees and 453 employer-sponsored savings schemes. That does not compare well with the year before, when there were 246,000 members, let alone with the year 1990, when there were over 300,000 employees and over 2,000 schemes. It is no wonder that the Reserve Bank reported recently that New Zealanders are expected to have a household savings rate of minus 12 percent for the year to March, and it projects that rate to deteriorate to minus 14 percent this year. It is no wonder that our household debt-to-income ratio, which was just over 60 percent in 1992, is now over 120 percent. It is no wonder that our national debt has reached $123 billion.

The Green Party believes the Retirement Commissioner has a pivotal role to play in educating, encouraging, and enabling New Zealanders to adopt and embrace a savings culture. We would have preferred the commissioner to be an independent Crown entity rather than an autonomous one, in order to give her as much independence as possible, and we are pleased to have succeeded in getting in place a 3-yearly review process. But we still want to see a lot more resources made available in order to encourage a savings culture and to make it happen on a more serious scale.

The KiwiSaver scheme will go some way towards increasing our savings records and providing further retirement protection for parts of our community that have not previously accessed it, but the structural economic barriers remain in place. Income sufficiency and job security are as uncertain as ever, and I would just like to echo the words of Hone Harawira and Gordon Copeland in relation to beneficiaries who simply cannot benefit from this scheme, at all. Given that most beneficiaries do not get enough to live on as it is, and that most of them are actually plunging deeper into debt every week they remain on the benefit, it is quite hard to see how a scheme like KiwiSaver could be made functional for beneficiaries.

Another barrier to trying to pull our economy out of its debt gridlock is the culture we have with our savings banks at the moment. Dr Cullen’s sweetener is tiny in comparison with the blandishments of our trading banks that we see and hear every day on TV, in the media, and when we go into the bank. Never have New Zealand consumers had debt shoved down their throats to the extent that they have it at the moment.

We are given increased credit card limits at the drop of a hat. We have endless TV ads about using the equity in our homes for cars, trips, furniture—you name it. Even people who cannot afford any debt constantly receive those blandishments to take up credit cards, to take on more of a home loan, and so on. What is worse, bank staff are even set sales targets to sell more debt to the public, and we were disappointed to learn today that it is possible even Kiwibank is acting in this way. It is not only the sales staff of the banks who are set sales targets; we hear that other staff within the banks are set them, as well.

The banks make their money from debt. Over Christmas, members may have heard of bank staff being encouraged to sell debt to their friends and family at the beach and at other camping facilities. Not only does that practice affect the workers’ performance bonuses but it also affects their basic rates of pay. If they meet the targets, then their rates of pay are raised. If they do not meet the targets, then they have a performance review.

We would love to see this culture, and the practice of the banks, changed urgently. The trading banks are force-feeding the public with debt. They are putting their own staff under unreasonable stress and pressure, which negates the Government’s policy on savings. We believe that the Government, alongside the KiwiSaver scheme and other measures, should be using every mechanism at its disposal to discourage the banks from their ever-increasing determination to push New Zealand households and individuals into deeper debt with every day that goes by.

HEATHER ROY (Deputy Leader—ACT) Link to this

I rise to speak to the first reading of the KiwiSaver Bill 2006 on behalf of ACT New Zealand. ACT will be opposing the bill. We do not believe that the bill will achieve what the Government says it sets out to achieve. There is nothing wrong, of course, with encouraging savings. Indeed, we should be encouraging people to save in whatever shape or form they feel is right for their particular situation. What does matter is the way in which we go about it.

The KiwiSaver Bill—a very thick bill—is very cynical. The announcement of the bill came at the last Budget, and was timed to be an incentive for people who thought savings plans would be the answer to all their savings woes to vote for the Government. In fact, an examination of the detail of the bill shows just how mean the bill is, even though it was promoted as something that would deal with the savings woes of much of the population. We have just heard from the Green Party MP Sue Bradford, and many others, about how the bill will not help the most needy. I was very surprised to hear Mr Gordon Copeland, of United Future, say that the bill was targeted to the most needy, when we know that the most needy in our society are those who are not earning and who are unable to earn. This bill, in fact, ignores those people who could most do with the benefits of saving. It is targeted at voters who, probably, are floating voters—voters who might float to the centre-right or to the centre-left.

Dr Cullen, when he outlined the bill, spoke a lot about the timing of the introduction of the scheme. He outlined the dates, but he omitted to tell the House and New Zealanders that the savings scheme would come into being just in time for the next election. So here we have a bill that was introduced in time for the election we have just had, and a scheme that will come into being just in time for the next election. Mr Hughes laughs, because he knows that what I am saying is absolutely true. He is very worried, because his electorate is in a very precarious position for the Labour Party. The vote-buying aspects of this bill might have been played down—

SHANE JONES (Labour) Link to this

There is a brilliant contrast in the way in which the different parties are approaching this bill. However, before I elaborate on that, I point out that the bill will be coming to the Finance and Expenditure Committee and there will be no shortage of opportunity for representatives from the industry to come forward and give us their views of life. There will be no shortage of opportunity for representatives from the various community groups who share our concern about the savings deficit that has blighted our country. This legislation has enjoyed great support up and down the country. Indeed, it was a key part of what the recent election was about. Therefore, the Finance and Expenditure Committee will be more than interested to hear the different perspectives, but, most important, to test how practical and realistic those parched and desiccated alternatives that the Opposition refers to actually are, and what resonance they offer.

But I must first return to my whanaunga, the honourable Hone Harawira. In his speech he referred to this bill offering considerable opportunity to improve the savings culture amongst our Māori people. Yes, there are some concerns about the income levels of a number of our Māori families, etc., but that issue is being dealt with elsewhere.

One of the key elements of this bill, in relation to its underlying thinking, is independence. This bill drives a number of initiatives that we have long been concerned about, which focus on how to enhance a sense of independence in people’s retirement years. Despite the ideology and the rhetoric from the other side of the House, there is no clear, coherent set of ideas other than the mantra of slashing the State and crudely handing out tax cuts without any clear conception of what will be the fiscal impact of those cuts.

The other thing this bill does is celebrate the institution of work. Work is a fantastic civic institution and this bill builds on our commitment to ensuring that those people who are in work are ably assisted, but, more important, that the employers share with the employees a joint responsibility to build, deepen, and broaden the capital base of our country. We cannot live incessantly or indefinitely on the grace and favour of international lenders or international investors. This is an example of where we are using the powers of this House and also the remedial forces of the State to ensure that in the future we have a stronger capital base for our economy. Another great feature of the bill is the importance of choice.

Despite the rhetoric from the other side of the House and some rather lazy commentators in the media, there are a tremendous number of positive features: pursuit of independence; enhancement of choice; and, as I said earlier, contribution to a savings culture. Why do we not have an adequate savings culture in this country? We need to ensure that the steps we take represent a long-term platform for both teaching our young people and ensuring that it becomes a key tenet of the employee-employer relationship that savings should grow. I am reminded of my youth and of the old Dalmatian gumdiggers and others who, if they had had the opportunity we are providing, would have seen in the long term, as they bequeathed their efforts of savings, of thrift, and of prudence to their future generations.

This bill will be carefully considered by our select committee. I have no doubt that the overwhelming number of submissions will be to enhance it and ensure that it finds a permanent place in our economic infrastructure.

DARREN HUGHES (Labour—Otaki) Link to this

I am very pleased to take the final call in the debate and to join my Labour colleagues Mr Jones, Lianne Dalziel, and others in welcoming another bill that delivers on the Government’s pre-election commitments. I believe that the KiwiSaver Bill is one of the most important bills that this Parliament will consider during this 3-year term, because it is focused very much on the future. This is a bill whose benefit will be seen long after most members of this House have given way to their successors, and I welcome it because it is the third leg in the treble, almost.

The Government has set up the New Zealand Superannuation Fund so that we can prepare our own finances in terms of funding New Zealand superannuation as a universal taxpayer entitlement. The Government has, as an employer, set up the public sector retirement savings scheme to show what an employer can do. Now we are setting up a facility for ordinary New Zealanders, particularly working people, to have access to some form of retirement savings—a modest amount of their weekly income, 4 percent, with some Government assistance. This is to try to tackle what we all acknowledge are two problems: first, an ageing population, and, second, the issue of getting New Zealanders’ savings levels up and our debt levels down. The Government has certainly tried to do that in the Crown accounts, and this is a signal to try to get other New Zealanders to be able to save from their incomes.

The Government, being a Labour Government, recognises that wages in New Zealand are not high enough, which is why we have taken numerous measures—changes to the minimum wage, changes to the Working for Families package, and other industrial law changes—to try to get New Zealanders’ incomes up. So it is a little rich to hear parties of the right complain that New Zealanders do not earn enough when they come into Parliament and consistently vote against all those measures.

We take the points that parties have made, we agree with those points, and we are trying to deal with them through our other policies. But we have to try to find a way of getting New Zealanders to save more. The KiwiSaver scheme is the only thing on offer—and it comes from the Labour Party—that we know most ordinary New Zealanders can get access to. This bill is a very, very important bill. I welcome it. It is forward-looking and future-driven, and it is no surprise to me that it comes from the New Zealand Labour Party.