What . is a KiwiSaver member tax credit?

THE MEMBER

tax credit, or MTC, is confusingly named and might have been better called a government ‘‘subsidy’’. Critics might even call it a bribe to get people investing into KiwiSaver.

Generally, the term tax credit refers to a sum of money that offsets a tax liability. The KiwiSaver MTC is hard to see in that way.

The MTC is paid as a $1 contribution (tax-free) for each KiwiSaver account for each $2 that is contributed from the accountholders own contributions up to a maximum of $521 regardless of the income level of the saver.

Thus, as KiwiSaver provider SuperLife puts it: ‘‘For employees saving the standard 3 per cent level, the maximum will apply if they earn $34,762 or more each year.’’

Whatever the technicalities, it is easiest to see it as a pure subsidy and indeed many appear to see it as a ‘‘target’’. They aim to save just enough each year to get the full subsidy – $1043m – and not a cent more.

That’s not the kind of behaviour the MTC was designed to encourage, but it was a fairly predictable outcome.

As a subsidy, the MTC obviously does not favour the lowly-paid, and it is designed not to be paid to anyone under 18, or to people who have reached age 65 who have become entitled to receive NZ Super.

SuperLife says that means ‘‘lower paid employees, may choose to make voluntary savings on top of the minimum to maximise the MTC they receive or to save at the higher 4 per cent or 8 per cent levels.’’

‘‘For employees saving 4 per cent of their income, the maximum applies if they earn $26,072 or more.’’

A good suggestion, but of course, many people on lower incomes naturally find it harder to salt money away.

MTC subsidies have a special nature once in the account. They cannot, for example, be withdrawn to buy a first home as a KiwiSaver members’ own contributions can, though any investment earnings on them can.

And if you permanently emigrate and have your KiwiSaver money released (as is your right), the tax credits are refunded to the government, though if you shift to Australia they can be transferred into an Australian super scheme.