KiwiSaver GST tax scrapped less than 24-hours after being revealed, financial expert Hannah McQueen weighs in

The Government has u-turned on a proposal to tax fees on KiwiSaver funds.

The proposal would have forced managed funds and KiwiSaver providers to pay a flat 15 per cent GST on fees.

The Government's backdown comes after a chorus of opposition to the move.

Financial expert Hannah McQueen joined Jono and Ben this morning – before the reversal was announced - to explain the impact the change would have made for Kiwis using the KiwiSaver scheme.

"For most Kiwis, that is their only form of saving, because we're a bit useless at saving," Hannah told Jono and Ben. "And to penalize that … It's pretty bullish, right?"

"The impact of this a little bit of tax is, I don't know, $50 a year, but over 25 years, that's $7,000.

"That’s your money that you don't have, and [it’s] kind of like, why are you penalizing people for saving? That's just the wrong message to be sending.”

Meanwhile, National Party leader Christopher Luxon told the AM show this morning, that Kiwis will be angered by the plans to charge GST on fees paid on KiwiSaver accounts from April 2026, which could net 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 into KiwiSaver doesn't make any sense," Luxon said.

"This can't stand, this is a really bad idea."

The Financial Markets Authority, the Government regulator, warned the fees would be passed on to consumers, and result in KiwiSaver balances being $103 billion lower by 2070.

The proposed tax bill was introduced to parliament yesterday to change the way the tax is applied to service fees charged by managed funds, which currently are not subject to GST.

The Inland Revenue has calculated that the proposed change will add around $225 million a year to the government's tax revenues.

Financial agencies and GST experts have warned the tax will hit KiwiSaver balances hard and be passed on in the form of increased fees, while the opposition has described it as "yet another tax grab ... to fleece New Zealanders of their hard-earned cash".

The Financial Services Council of New Zealand (FSC) also described the changes proposed in the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill as legislative "overreaches" and a "suboptimal outcome" in the middle of a cost-of-living crisis.

The new rules would have lifted GST on fees for managed funds and KiwiSaver to the standard rate of 15 per cent. Currently the tax treatment of these funds varies.

Modelling from the Financial Markets Authority (FMA) warns the tax and its compounding effects would dent KiwiSaver balances by $103 billion by 2070.

This compares to total KiwiSaver balances which are expected to be $2196b in 2070.
Non-KiwiSaver funds will be hit by $83b. Total fund balances in 2070 would be $1757b. The figures were included in a Regulatory Impact Assessment (RIA) published with the rule change.

That amount of lost savings was equivalent to more than half the size of New Zealand's 2022 GDP.

Individual savers with balances of $100,000 could have lost about $20,000 over 25 years.

Revenue Minister David Parker continued to defend the change.

He said that after the proposal was released, smaller KiwiSaver providers had made it clear they opposed the move.

"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. 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," Parker said.

Parker said he was "proud" of Labour's history of introducing Kiwisaver.

"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. When last in Government National ditched the Kick-Start payment and introduced a tax on employer contributions," Parker said.

This article was first published by the NZ Herald and is republished here with permission. Additional reporting by The Hits.