Why are so many Ki­wis walk­ing past free cash?

The mil­lions of us miss­ing out on Ki­wisaver’s tax cred­its are wast­ing our money.

Sunday News - - FRONT PAGE -

There’s an old joke about a pair of econ­o­mists walk­ing down the street. The younger one hap­pens to spot a $20 note on the pave­ment, and ex­cit­edly tells his companion.

‘‘Non­sense,’’ says his older and wiser col­league, with­out even both­er­ing to look. ‘‘If there had been a $20 note ly­ing on the street, some­one would have al­ready picked it up by now.’’

In the cloud cuckoo land of old-school eco­nomics, mar­kets are per­fectly ef­fi­cient, and hu­mans are clock­work ma­chines who al­ways act in their own best in­ter­ests. Any low-hang­ing fruit is rou­tinely plucked, and all op­por­tu­ni­ties are briskly taken ad­van­tage of.

Noth­ing punc­tures this fan­tasy quite like the Ki­wiSaver mem­ber tax credit. Ev­ery year, the gov­ern­ment ef­fec­tively of­fers up $521 of free money to al­most ev­ery­one be­tween 18 and 65. Ev­ery year, stu­pen­dous num­bers of peo­ple leave it sit­ting on the pave­ment and walk right on by – over a mil­lion mem­bers, at last count.

This baf­fling phe­nom­e­non has a few pos­si­ble ex­pla­na­tions. First off, the name is stupid and con­fus­ing: the mem­ber tax credit has noth­ing what­so­ever to do with taxes. It’s just a cute at­tempt to dis­guise its ac­tual pur­pose, which is a bla­tant money-go-round for the mid­dle and up­per classes. 123RF

Se­condly, the tax credit is au­to­mat­i­cally taken care of for some peo­ple, but not for oth­ers. If you earn more than $35,000 a year and make con­tri­bu­tions at the min­i­mum 3 per cent rate, your Ki­wiSaver provider will claim the full free­bie on your be­half with no ac­tion re­quired.

If you don’t earn that much, or you’re self-em­ployed, or you’ve taken a con­tri­bu­tions hol­i­day, it’s up to you to get what you’re en­ti­tled to. First, you need to check how much has gone into your ac­count since July 1 last year. To get the max­i­mum ben­e­fit, you need to have per­son­ally con­trib­uted at least $1042.

If you’ve put in less than that, you’ve got un­til the end of June to con­tact your provider and make a vol­un­tary lump sum con­tri­bu­tion. Ev­ery dol­lar you chip in up to that $1042 thresh­old will ef­fec­tively earn an in­stant 50 per cent re­turn, which is un­heard of in any other in­vest­ment class.

This raises an­other ob­vi­ous prob­lem: most peo­ple don’t have a cool grand just ly­ing around the place, and it’s not ex­actly easy to scrape that kind of money to­gether in a hurry. A much less stress­ful op­tion is to set up an au­to­mated pay­ment of $20 a week to your Ki­wiSaver provider, then for­get about it.

For some peo­ple liv­ing on the bones of their bums, even this is too much to ask. Our econ­o­mist friends would point out that they’re mak­ing a ra­tio­nal de­ci­sion, be­cause it’s not much use plan­ning a dis­tant re­tire­ment when you’re hun­gry and have bills to pay right now. There are def­i­nitely some folks in this cat­e­gory, which is re­ally sad, but the re­search sug­gests that most peo­ple are just obliv­i­ous.

Which is why you’re read­ing this peren­nial col­umn. I’ve writ­ten about the mem­ber tax credit sev­eral times be­fore, but have no choice but to keep labour­ing the point un­til ev­ery­one gets the mes­sage. If you’re a reg­u­lar reader of the money pages, and you’re bored to tears of hear­ing about the mem­ber tax credit, please clip this out and pass it on to a friend or fam­ily mem­ber.

Spread the word far and wide: There’s $521 ly­ing on the pave­ment, in the ex­act same spot, ev­ery sin­gle year, with a gi­ant neon sign point­ing to it say­ing FREE MONEY!!! – and a mil­lion peo­ple keep walk­ing right on by. Got a burn­ing money ques­tion? Email Bud­get Buster at richard.mead­ows@thedeep­dish.org, or hit him up on Face­book, where you can also find links to pre­vi­ous Bud­get Busters.

Leav­ing your Ki­wisaver’s tax cred­its un­claimed is like los­ing your cash out of your back pocket.

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