Greens claim $700m 'uncosted hole' in Budget

Otago Daily Times

25-05-2025

By Susan Edmunds of RNZ
The government could face an unbudgeted hole of hundreds of millions of dollars in increased KiwiSaver contributions for public sector workers, the Green Party says.
As part of the Budget last week, the government announced that the default KiwiSaver contribution for employees and employers would lift to 4 percent, in stages.
But the Green Party said the government had not accounted for that increase for its own employees in its books, and over the Budget forecast period it could add up to $714 million in costs.
Co-leader Chloe Swarbrick said last time the government increased the compulsory employer contribution, it set up a fund to help cover its costs.
The increased cost to government as an employer was highlighted in the Budget Economic and Fiscal Update and in the KiwiSaver reforms regulatory impact statement.
"What we've found is what we believe to be a hole in the government Budget, an uncosted hole of anywhere from $633m to $714m over the forecast period," Swarbrick said.
"The Crown is obviously an employer of thousands and thousands of people with billions and billions of dollars in wage bills. If we're to project from the base line of around 72 percent of the population... at the default rate which is increasing, the Crown will have an increased liability to meet those employer contributions."
She said the government either did not spend enough time working it out, or was "intentionally hiding or obscuring what I'm sure the minister will say are going to have to be new cuts that agencies and ministries will be forcing departments to make to account for the increased contributions".
Finance Minister Nicola Willis's office said the potential cost had been noted.
"Crown agencies as employers will assess the potential implications for agency budgets. If any additional funding is required, it would count against the Budget 2026 operating allowance."
But Swarbrick said it was not being sufficiently upfront.
She said it seemed the government did not want to be seen to be being "mean" by just halving the member tax credit, to $260 a year, and so had to increase contributions at the same time.
It should have happened as part of more consultation and a full review of retirement settings, she said.
"This will be an additional cost as soon as the changes come into effect."
Employers who offer total remuneration packages to employees will dodge some of the increase but Swarbrick said it was clear that the government would not be able to shift people on to that arrangement to avoid the increase in a way that reduced their take-home pay.
Craig Renney, policy director at the NZ Council of Trade Unions and a member of the Labour Party Policy Council, said it was an issue for the government as an employer.
"It would be good to know what calculations they have made themselves as to their additional remuneration costs. Is the Crown going to force workers to eat the increase themselves? It would set a very bad example for the rest of the market."
He said good employers should see the increase as an opportunity to improve employees' retirement outcomes.
"The risk is that for some employers they might view the 'total remuneration' of their employees as a single package. That would mean they would expect any increase in KiwiSaver to come from the same money. That would mean lower real pay increases for employees and less cash in hand.
"Given that we have very weak demand in the economy, there are probably limited opportunities for employees to get a different job - especially with unemployment forecast to keep rising. Ultimately, that would mean that the government has set up a system where employees end up paying for increased employers contributions to their own KiwiSaver.
"There are some industries where there might be a simple pass-on to the consumer for these costs, but again, in a subdued market these are probably fewer than you might expect. These are probably also higher income earners, so the likelihood is that lower income earners will be more likely to face that 'total remuneration' issue. That will simply compound existing income adequacy problems in New Zealand."
Employees will be able to opt to return their contribution to 3 percent, matched by an employer's 3 percent.
Renney said there was a risk some people could face pressure to do so.
"Again, it is likely to low paid/lower market power employee who face this challenge. Secondly, if we make it easier to become a contractor - where this is not an issue - this move will encourage employers to pretend that their employees are contractors. The current proposed changes by government in that regard might drive more of that behaviour, putting workers at a significant disadvantage."