The Government is scrapping its plan to charge GST on KiwiSaver accounts after widespread backlash.
Quietly introduced on Tuesday, the Bill was being described as a "sledge hammer to retirement funds" that could cost people thousands of dollars.
However, Revenue Minister David Parker confirmed on Wednesday afternoon the plan would not go ahead.
"During extensive consultation views were mixed on the merits of the technical change. The large companies profiting from the current set-up were opposed to the change, while smaller providers were more supportive of the change," he said in a statement.
"However since the announcement it has become clear that smaller providers now oppose it too."
According to modelling by the Financial Markets Authority, the plan could have slashed about $103 billion from KiwiSaver funds within 50 years.
But Parker went on to say there had been "inaccurate representation" about the proposal.
"New Zealanders' KiwiSaver contributions and balances were not going to be taxed under this legislation," he said.
"However, it is clear from the reaction to this proposal that it has caused concern for Kiwis."
Parker said he was proud of Labour's role in KiwiSaver, first introduced by Helen Clark's Government in 2007.
"We will never do anything to undermine it," said Parker.
"By contrast, National will not commit to keeping KiwiSaver in its current form and cannot be trusted to support this important scheme."
While Parker said the plan wasn't a tax on KiwiSaver, experts and the Opposition disagreed.
"Everybody that I've talked to that's got a KiwiSaver fund and is talking and looking at this... have told me that they consider it to be a brand new tax," said Allan Bullot, from finanical advisory firm Deloitte.
"Technically, is there a new tax that someone's invented? No. Are we coming and looking at something that hasn't been subjected to tax since 1986 and saying, 'We're going to change the legislation'... [it] sounds like a new tax," Bullot told AM.
National Party leader Christopher Luxon blasted the Bill on Wednesday and urged New Zealanders to stand up against it.
"We're going to stop it," Luxon said of the plan. "I actually think the team of 5 million people needs to stand up this week and actually say to the Government, 'Enough, stop' and actually get the Government to withdraw it."