31 Aug 2022

Government drops plans to charge GST on KiwiSaver fees

1:28 pm on 31 August 2022

The government has dropped its plan to put GST on KiwiSaver fees after fierce backlash from the public and opposition.

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File image. Photo: VNP / Daniela Maoate-Cox

It had intended to charge GST on fees paid on KiwiSaver accounts from April 2026.

The move would potentially have netted it $225 million annually in taxes.

Revenue Minister David Parker defended the proposal yesterday and this morning, saying it was about consistency in the tax system.

In a statement this afternoon, Revenue Minister David Parker confirmed the government would not proceed with the GST changes proposed in legislation introduced to the House last night.

"Because of the importance of public confidence in KiwiSaver and the need to ensure nothing unduly affects New Zealanders' willingness to save, the government will not to go ahead with the proposal."

The bill is a large "omnibus" bill which covers a range of changes, but the proposal to levy the 15 percent goods and services tax on KiwiSaver service fees grabbed headlines yesterday, with estimates of $225 million a year taken in taxes.

Parker had sold it as a move which would make the system more consistent, but it would have eaten into KiwiSaver fund holders' retirement savings and opposition parties were quick to criticise it.

National's leader Christopher Luxon told Morning Report today the proposal needed to be stopped immediately, as it would have a huge impact on the long-term value of people's retirement savings.

This afternoon, Parker said it was generally bad to have distortions like this in the tax system, but "if the sector as a whole is happy to operate with the status quo then we will leave them in place".

"Smaller fund management providers who were doing the right thing were at a competitive disadvantage compared to others, mostly larger providers, who were using the loophole," he said.

"However, since the announcement it has become clear that smaller providers now oppose it too."

His statement quickly turned to criticism of his political opponents.

"I am proud of Labour's role in introducing KiwiSaver and its role in securing the future of New Zealanders. We will never do anything to undermine it. By contrast, National will not commit to keeping KiwiSaver in its current form, and cannot be trusted to support this important scheme."

Government defends U-turn

Heading into Parliament this afternoon, Parker put a share of the blame on media and KiwiSaver fund managers.

"We were expecting some of the smaller fund managers to support this, none of them have been, the clarion call against it risks undermining public confidence in KiwiSaver including misrepresentations that this was a tax on KiwiSaver contributions or their returns which it never was, but we weren't willing to put KiwiSaver reputation at risk."

Labour MP David Parker

David Parker Photo: RNZ / Angus Dreaver

"One of the headlines in one of the major newspapers said that this was a tax on KiwiSaver, so it gave people the impression that their KiwiSaver savings were going to be subject to GST."

The advice from the Financial Markets Authority had been oversimplified, he said.

"It depends what would be the competitive response to fees. New Zealand fees are already higher than they are in Australia even though in Australia they already have the GST treatment that we were proposing."

He acknowledged it was embarrassing and said the government had not expected the backlash.

"The reaction to the proposal has been overblown and has included assertions that it was a wealth tax ... someone else said that it was going to be a tax on KiwiSaver, implying that it was a tax on KiwiSaver contributions.

"Maybe I shouldn't have been surprised at how well banks defend their profits."

He said the decision to include the provision - and today to remove it - was his, and Finance Minister Grant Robertson's.

Robertson said the intent had been to level the playing field between the different KiwiSaver fund providers.

"Quite clearly the levelling of the playing field that was intended wasn't appreciated by the people on the playing field, and I certainly don't want to see us do anything that undermines KiwiSaver and so, you know, the decision's been taken to pull back on that.

"It is really important that New Zealanders have confidence in KiwiSaver. This wasn't going to affect their KiwiSaver - it was about service fees - but we don't want to do anything that undermines that."

Prime Minister Jacinda Ardern was on the same page.

"Whilst what we were aiming to do was simply even up the playing field for fund managers, it was more important to us that KiwiSaver is not seen to be undermined," she said.

Prime Minister Jacinda Ardern

Photo: RNZ / Angus Dreaver

"Ultimately though we thought we were fixing the system for those fund providers, we've heard very clearly from them they don't believe that's what it would achieve and so, simple, we won't change it."

She said the government had consulted with the sector before the bill was introduced, and the decision was based wholly on the importance of KiwiSaver.

"It's fair to say that the original consultation suggested there were arguments on both sides. Now we seem to be hearing just one side, but the most important thing for us is to never undermine KiwiSaver."

Opposition twists the knife

National's leader Christopher Luxon suggested Labour would keep trying to find new ways to tax New Zealanders.

"I can tell you, you cannot trust Labour on tax and this is evidence of that - and be reassured that David Parker and Grant Robertson and Jacinda Ardern are beavering away, conjuring up new ways of hitting hard-working Kiwis with tax."

National Party leader Christopher Luxon

Photo: RNZ / Angus Dreaver

He was more positive about the decision today, but put it down to populism.

"Clearly this is a poll-driven govt, the big takeaway from this is they are desperate to hang on to power, and they'll do anything that's needed in order to do that, they'll even betray their own principles to do that, and that's what we've seen.

His deputy Nicola Willis, also the party's finance spokesperson, said it was clear Labour could not manage money.

"So when they run out of their own money through their addiction to spending they come after yours. They tried to sneak this tax through but ... they were prepared to take $225m from New Zealanders' KiwiSaver funds.

"We stopped this one, but you can be sure they will be dreaming up new ways to fleece New Zealanders and National will be on the lookout for more of this to come.

She said it was an unconscionable policy and David Parker needed to take responsibility, "but so does the Prime Minister - she signed off on it too. Labour needs to go, it's time for a new government".

ACT leader David Seymour said Labour and National both had it wrong.

"The real problem is out-of-control government spending - that's what drives tax. We should have had a simpler GST system - that's what Labour proposed but they also spent too much - National on the other hand aren't proposing to cut spending but they're now opposed to a simpler GST system."

Leader of ACT party David Seymour

Photo: RNZ / Angus Dreaver

"Labour backed down, we've got the worst of all worlds - complex GST and too much spending."

He said some humility and acceptance they were wrong was welcome from Labour, but "in this case though they backed down on the wrong policy".

"The Labour Party have never accepted they were wrong before so no one saw this coming - I just wish they'd start backing down on some of their other policies.

Māori Party co-leader Debbie Ngarewa-Packer suggested the whole affair - and the speed of the backdown - showed Labour was playing too fast and loose.

"I just wish that something so important was given more time, and I've never seen the sliparound in such a short time, so it just goes to show how off-the-hip they're doing things at the moment. It's not safe, it's not a good place to be in."

Greens urge other KiwiSaver changes

Green Party finance spokesperson Julie Anne Genter called for the government to now turn its attention to reversing the cuts to KiwiSaver brought in by the previous National government.

"Christopher Luxon has shown staggering hypocrisy over the last 24 hours. It was his party that systematically made it harder for people to save for their retirement," she said in a statement.

"It was National that introduced a new tax on employer contributions to KiwiSaver in 2011 ... it was National that halved the annual maximum Government contribution to KiwiSaver accounts from $1042 to $521 ... it was National that removed the $1000 kick-start people were provided when they opened a KiwiSaver account."

She said the government should incentivise New Zealanders to save through KiwiSaver by reversing those cuts.

Green MP Julie Anne Genter speaks during the first sitting day of 53rd Parliament on 1 December, 2020.

Green MP Julie Anne Genter speaks during the first sitting day of 53rd Parliament on 1 December, 2020. Photo: Hagen Hopkins/Getty Images

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