Prime Minister Jacinda Ardern and Treasury Secretary David Parker. Photo / Mark Mitchell
The government has turned around a proposal to tax fees on KiwiSaver funds.
The proposal would have forced managed funds and KiwiSaver providers to pay a flat 15 percent GST on fees.
The government’s withdrawal comes after a chorus of opposition to the move, including National Party leader Christopher Luxon, who said his party would push to stop the “pension tax”.
Speaking on the AM show this morning, Luxon said Kiwis will be upset at plans to start charging GST on fees paid on KiwiSaver accounts from April 2026, which could bring the government millions of dollars a year in additional revenue.
“This is such a bad idea; a retirement tax when we’re trying to encourage people to KiwiSaver doesn’t make sense,” Luxon said.
“That can’t stand, that’s a really bad idea.”
Prime Minister Jacinda Ardern said the reversal was the result of feedback from fund managers.
“We recognized that we had an uneven playing field when applying GST to fees and services. Ultimately, however, we thought we would fix the system for these fund providers. We heard from them very clearly, they don’t think it would achieve that,” Ardern said.
Treasury Secretary David Parker continued to defend the change.
He said that after the proposal was made public, smaller KiwiSaver vendors made it clear they opposed the move.
“During extensive consultations, opinions differed on the merits of the technical change. The large companies that benefit from the current structure opposed the change, while smaller players tended to support the change. This was because these providers charging full GST on their service fees faced unfair competition from the larger providers.
“However, since the announcement it has become clear that smaller providers are now also fighting back,” said Parker.
Parker said he was “proud” of Labor’s history in launching Kiwisaver.
“I am proud of Labor’s role in launching KiwiSaver and its role in securing the future of New Zealanders. We will never do anything to undermine this.
“In contrast, National is not committed to maintaining KiwiSaver in its current form and cannot be trusted to support this important program. Last time in government, National dropped the kick-start payment and introduced a tax on employer contributions,” Parker said.
Parker objected that the tax was a tax on KiwiSaver — the tax was a tax on KiwiSaver fees that regulators said would result in lower KiwiSaver credits, he said.
“It was a proposal to offset the GST of fees paid to KiwiSaver vendors,” Parker said.
Murray Harris, head of KiwiSaver at Milford Asset Management, said the government’s change in stance was “reasonable”.
“Of course, that triggered a lot of discussion.”
He said adding GST to KiwiSaver fees would have been another stumbling block for Kiwis to save for retirement.
The New Zealand pension system means that KiwiSaver members are already taxed on their income before contributions go into KiwiSaver and are also taxed on investment income. Many other OECD countries provide tax exemptions for this.
A 2018 OECD report found that New Zealand had the second-lowest tax gain on its retirement savings.
The Financial Markets Authority, the state regulator, warned that the fees would be passed on to consumers and would result in KiwiSaver balances falling by $103 billion by 2070.
Proposed tax law was tabled in Parliament yesterday to change the way the tax is applied to service fees charged by managed funds that are currently not subject to GST.
The IRS has calculated that the proposed change will increase government tax revenues by about $225 million per year.
Tax authorities and GST experts have warned the tax will hit KiwiSaver balances hard and will be passed on in the form of increased fees, while the opposition has described it as “yet another tax heist… to rob New Zealanders of their hard-earned cash” .
The Financial Services Council of New Zealand (FSC) also described the changes proposed in the Taxation Bill (Annual Rates for 2022-23, Platform Economy, and Remedial Matters) as legislative “overkill” and a “sub-optimal outcome” in the midst of a crisis the cost of living.
The new rules would have raised the GST on fees for managed funds and KiwiSaver to the standard rate of 15 percent. Currently, the tax treatment of these funds is different.
Financial Market Authority (FMA) models warn that the tax and its compounding effects would erode KiwiSaver balances by $103 billion by 2070.
This compares to total KiwiSaver assets which are projected to be $2196 billion in 2070.
Non-KiwiSaver funds will be charged $83 billion. Total fund holdings in 2070 would be $1757 billion. The numbers were included in a Regulatory Impact Assessment (RIA) published with the rule change.
That amount of lost savings was equivalent to more than half of New Zealand’s GDP in 2022.
Individual savers with $100,000 in assets could have lost about $20,000 in 25 years.
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