Peter Dunne is hinting that rather than offering personal tax cuts, the government will instead provide further sweeteners to people using KiwiSaver. It's a good idea, and one which neatly gets the government out of its self-imposed fiscal discipline hole.
The problem with tax cuts is that they are inflationary - people go out and spend the money, driving up prices, and eventually interest rates. KiwiSaver offers a way out of this problem, in that the money is not immediately available for spending, and so its inflationary effect will be negligible (the same thinking applies to the Cullen Fund, BTW). It also allows the government to get a double payoff - they are trying to promote saving and get people signed up for KiwiSaver, and providing extra incentives (higher bonuses, government contributions, automatic diversions of taxes into KiwiSaver accounts) will encourage this. And it allows them to avoid the whole issue of compulsory savings - why bother with compulsion if the offer is so good that almost everyone will take it?
My only worry is that increased private retirement saving may create space for a future right-wing government to undercut universal provision of superannuation - the absolute bedrock of the welfare state. OTOH with an aging population, the power of the grey voting bloc is only going to grow, and this should act as a check on such radical moves.