“Post-budget, it’s becoming clearer that for some businesses, the tax cut in last week’s budget will be effectively wiped off the books, or at least substantially offset by the cost of KiwiSaver, ” say Ernst & Young budget spokespeople Jo Doolan and Aaron Quintal.Ernst & Young is recommending businesses take steps to calculate the impact of employer contributions, and have their calculations checked, before entering wage negotiations.

Ernst & Young’s modelling of the proposals suggests some businesses may be in for a sharp surprise.

“The Government’s prediction is that tax credits will account for half the cost of an average firm’s wage bill, but talking about averages is false security, ” says Doolan.

As a rule, the KiwiSaver employer tax credit will only fully fund the employer contribution if staff are paid no more than:

From 2008 1% employer contribution $104, 000
From 2009 2% employer contribution $52, 000
From 2010 3% employer contribution $34, 667
From 2011 4% employer contribution $26, 000

“Those who pay their employees more than a basic wage will end up bearing a substantial cost. An open book policy on figures – agreed in advance by both parties to wage negotiations – is going to be crucial.

“Business be warned. When compulsory super was introduced in Australia it was a result of an agreement with the Unions that this was instead of a round of wage increases. In New Zealand, the Government appears to be saying that this sort of compromise would be a good idea, but each business must negotiate.

“The great hope of the budget – that business would use the tax saving to invest in measures to increase productivity – is dimming by the day.

“Instead the hoax is giving a tax cut to business on one hand and telling them on the other that they have to pay into employee savings accounts.”