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So how are you going to spend your $20 a week tax savings? Here's a thought...

Published on 26/05/2017

Good news for middle income NZ this week. 

In its 2017 Budget, Government announced that the two lower tax brackets would shift from $14,000 to $22,000 and from $48,000 to $52,000. 

In practical terms, this means tax cuts. Those earning more than $22,000 will be around $11 a week better off and those earning more than $52,000 will pocket an extra $20 per week.

The changes take effect from April 2018 and are expected to make Kiwis $2 billion a year better off all up as part of pre-election goodies promised.

Sure, it's easy enough to spend that $20 a week on living expenses these days or maybe having some fun but if you're a money minded person, you'll think twice before blowing it.

Incidentally, $20 a week in KiwiSaver contributions will get you an extra $521 in tax credits from Government.  If you don't make the $1,043 goal, you'll still receive 50 cents for every $1 contribution. The 'member tax credits' are capped at $521 a year.

So, let's imagine you are one of the 1.6 million non-contributing KiwiSavers, many of whom took advantage of the $1,000 kick start when it was around, but haven't done much since. A common scenario for many parents who enrolled their kids in KiwiSaver. Fast forward 18 years.

Paying it forward 

Before tax, and even with the lowest fees on the market, your $1,000 is now in the neighbourhood of $1,740. We'll assume a 6% annual rate of return.

Now, compared that to someone who took the $1,000 kickstart AND contributed $20 a week over a period of 18 years. Before taxes and after fees, that regular savings compounding weekly would escalate to $34,393. Not enough for a deposit on a house in Auckland these days but certainly enough to offset the average cost of a tertiary education. 

Note: these calculations exclude member tax credits. Under current rules, you can't receive them until after 18.

Okay, so KiwiSaver can't be tapped for university but our Simplicity Investment Funds (which work exactly like our KiwiSaver funds) do allow for this. What a great legacy gift for a grandkid.

To see the benefit of higher contributions rate on your KiwiSaver, try using our tool under our My Options. And remember auto payments are simple to set up from your bank account.

Use your surname and IRD number for a reference. Watch your savings grow and grow.