A payroll tax increase? Now?

The Prime Minister signals cuts to come in government spending on KiwiSaver, the tax-preferred retirement savings vehicle. The government currently subsidises KiwiSaver contribution with a one-off $1000 deposit into new KiwiSaver accounts and matches employee KiwiSaver contributions up to about $1040 per year. Employers are required to kick in contributions equivalent to 2% of your pay if you're eligible to join.

This has proven somewhat expensive for the government; consequently, John Key's signalled a halving of the government's contribution, with minimum employer and employee contributions to rise.

I hope that Key doesn't go for any large or quick increases in mandatory employer contributions. Tax incidence says it doesn't matter whether the employer or the employee bears the statutory cost, but if nominal wages are downwards sticky - and I can't believe that wage cuts consequent to mandated employer side contribution increases wouldn't get the employer into hot water - employers will react similarly to other payroll taxes. If it's done through a slow ratchet, employers can more easily compensate by varying the proportion of the total compensation bundle going to employees via cash and retirement funds.

And now I'm mildly curious whether StatsNZ data on hourly wages include effective payments made to employees by employers through KiwiSaver. I doubt that it does. Nominal wage data will then understate the growth in full employee compensation. [Update: One series includes it, another doesn't. I'll have to watch next time to see which is the one quoted in media reports. See here and here. Thanks Scott!]

Next week's budget will be interesting.