KiwiSaver fees GST backdown shows government out-of-step with public sentiment - critics

There were other options on the table if the government wanted to level the playing field for KiwiSaver providers with regard to GST, National says, and the backlash to the now-scrapped proposal shows it is not what people wanted.

The government announced earlier this week that it planned to introduce GST on fees paid on KiwiSaver accounts from April 2026.

The move would have netted it millions of dollars a year in additional revenue, but it was dropped yesterday after a chorus of opposition.

National Party finance spokesperson Nicola Willis told Morning Report the backdown was a credit to "the tens of thousands of New Zealanders who spoke out in protest".

She said if the government had really wanted to level the playing field to ensure consistency of GST payments on fees across all KiwiSaver providers, there were other options on the table.

"The government was given four options by the IRD and if levelling the playing field was really what they were trying to do, option three in the paper that was released to Parliament, was that another way of providing certainty and consistency, was to reduce overall tax by $20 million, by making all fund managers and investment managers exempt from GST," Willis said.

"The government, faced with the choice of less tax, or more tax, went for the latter."

Financial Services Council chief executive Richard Klipin agreed a GST exemption would have been a better way to "tidy up" any anomalies.

He told Morning Report the issue was not necessarily about tax.

"This was all about tidying up anomalies in the legislation, rather than necessarily a tax conversation.

"Our view was the best way to do the tidy-up is just make everyone exempt, and then you have your level playing field, but of course, where [the government] went was they included everyone in the regime, which meant everyone got captured in the GST regime."

Willis said the advice was "very clear" that, had GST been applied to KiwiSaver fees, it would have been passed on to New Zealand KiwiSavers.

"That was the advice the government received, and they decided to push play anyway. That was clearly ill-advised, and that's why we've seen this backdown."

Financial services had always been exempt from GST, Willis said, and the proposal would have been a significant change which no one was asking for.

"People have been pretty happy with the status quo and it's very unclear to me why the government thought that it was worth taking a hundred billion dollars of New Zealanders' retirement savings to make this change."

Klipin said the focus should be on delivering value to New Zealanders, and consumers needed to choose their KiwiSaver fund providers wisely.

"In the end, the regulation and the law applies to everybody who's in the sector; these are organisations that are licensed and competition reigns, so welcome that," he said.

"A cost that a fund or a KiwiSaver provider offers, they'll make a call about how much they have to pass on, or not, and absorb - whether it's a GST fee or any other fee."

Deputy Prime Minister Grant Robertson conceded to First Up that the government could have done more to explain to the public why the proposal, which was part of a wider tax bill, was "good public policy".

"Perhaps there could have been more done to explain the rationale and to say how this could work in terms of people's KiwiSavers and the fact that some of the things that ended up being said just weren't correct, but that's the kind of thing we can reflect on."

He said in preparing the proposal the government had continued work the National Party had begun in 2017, looking at whether fund managers were being treated consistently with regard to GST on fees.

"There definitely were mixed views within the managed fund community and we'd come to the decision that making it all consistent across the board would be the right thing to do."

However he said that, upon the proposal being released, it became clear that "some of the smaller fund managers, who'd been quite supportive of us moving to a different regime, weren't continuing their support".

"It would be fair to say that the reaction was swift from folk; people didn't like seeing anything that might affect their KiwiSaver - even if this wasn't a direct tax on their KiwiSaver."

Robertson said the public reaction made it clear to the government that "people were seeing this as somehow or other undermining their KiwiSaver, and that is absolutely not what we wanted".

"We don't want people to have any doubt whatsoever about their KiwiSaver ... we totally appreciate that, and that's why we've backed away from it."

U-turn will further erode confidence in KiwiSaver scheme - fund manager

A KiwiSaver fund manager says the government should have front-footed its GST proposal.

Kernel Wealth chief executive Dean Anderson told RNZ he was "mind blown" at the speedy policy reversal and it should have been easy to gauge public sentiment before announcing the proposal.

"It's a very dramatic 24 hours, for a very significant piece of policy that involves millions of Kiwis and hundreds of millions of dollars," he said.

He said he was amazed the public had not been warned in advance.

"To throw out quite dramatic policies like this and then do a u-turn on it, it will just further erode the confidence that Kiwis have in the scheme and the structure and what its purpose is."

Anderson said he was concerned the abandonment of the proposal had made things worse.

"Now I think many Kiwis will look at this and go, 'wow, they could just change the rules at any time'."

KiwiSaver provider Simplicity managing director Sam Stubbs said he was bemused at the government's misreading of the public's and the industry's mood.

Simplicity was a smaller fund manager for six years but is now a larger one.

"We've been through the whole gambit and never, ever, have we had any issue with GST," he said.

"The rules have been very easy to understand, very applicable, the advice has all been in one direction, so I'm not sure where that was coming from.

"I find that somewhat bemusing as being the reason for levelling out the playing field with such huge consequences for everybody."

Stubbs said both the current and any future governments should heed the lessons of the fallout from the proposal.

"Don't mess with KiwiSaver ... when you change the rules - particularly if you change the rules in a quick and surprise manner - you're actually impacting, or you're being perceived to impact, the savings of three million people."