KiwiSaver fee tax: Government reintroduces tax Bill without widely criticised changes

The Government's reintroduced its colossal annual tax Bill - this time without the proposal to apply GST on KiwiSaver fees. 

The original plan was to apply 15 percent GST to the fees and services of managed fund providers, like those administering KiwiSaver schemes.

Inland Revenue (IRD) warned the cost of higher fees could be passed on to investors, netting the Government about $225m a year. Modelling from the Financial Markets Authority showed it could lead to KiwiSaver balances being reduced by $103 billion by 2070.

However, after significant public backlash and no support for the scheme from small fund providers who the Government expected to back the change, the proposal was dumped last week.

The legislation making the change, which also contained numerous other provisions tidying up tax law, had to be withdrawn from the House - just two days after being introduced 

A statement from Revenue Minister David Parker on Thursday confirmed a new version of the legislation has been introduced, but this time without the proposal to apply GST to managed fund providers' fees.

"The Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill (No2) will be referred to a select committee for consideration and submissions, and will be passed by 31 March, 2023," the statement said.

"This is an annual Bill that confirms the taxation rates for the coming year and tidies up tax legislation. The Bill contains more than 190 provisions changing the tax law spread over 9 main measures and a range of remedial amendments."

Parker released a statement when the first Bill was introduced, but it didn't mention anything about the proposal for KiwiSaver fees. It did, however, mention a new requirement for "digital platforms to collect GST on ridesharing, food and beverage delivery, and short-stay and visitor accommodation provided in New Zealand".

Prime Minister Jacinda Ardern conceded to AM on Monday that the Government should have been more transparent, but said it wasn't its intention to hide the proposal.

"[Parker] was of course making judgements over what he thought would be of the most public interest. Look it should have been included, there were a number of other things that should have been included so I am not going to argue with that."

When Parker announced the backdown - less than 24 hours after the Bill was introduced - he said the proposal had been intended to create a level playing field, requiring large fund providers to pay GST on fees, which small providers are already doing.

"During extensive consultation, views were mixed on the merits of the technical change," he said. 

"The large companies profiting from the current set-up were opposed to the change, while smaller providers were more supportive of the change. This was because these providers who did charge the full GST on their service fees faced unfair competition from the bigger players.

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

The minister admitted the reversal was slightly embarrassing, but believed public outrage had been stirred by what he called misrepresentation of the proposal. Parker said some commentary had suggested the tax was on KiwiSaver contributions, rather than fees. 

The National Party was delighted with the U-turn.

"They can dress it up any which way they wish. The reality is that this was a tax on hardworking Kiwis and their KiwiSaver and their retirement incomes. It's not acceptable and it is good that it's stopped," said leader Christopher Luxon.

While the last National Government made changes to KiwiSaver, including slapping a tax on employer contributions and ditching the $1000 kickstart, National Party Finance spokesperson and deputy leader Nicola Willis ruled out making changes to it if she were Finance Minister.