Revenue Minister David Parker. Photo / Mark Mitchell
Revenue Minister David Parker. Photo / Mark Mitchell
Twenty-four hours is a long time in politics.
Over the last few days, we've seen the Government move from announcing a sweeping change to the tax system worth $103 billion by 2070, to backtracking completely.
NZ Herald business editor at large and Money Talks podcast host Liam Dann tells the Front Page podcast that this fiasco comes down to a miscalculation on how the media works.
While this looked like an esoteric tax change on the surface, Dann says it didn't take journalists long to latch onto a narrative about the compounding effect this would have on KiwiSaver accounts over many years.
Analysis suggested the added cost in fees would be around $96 a year, but that number adds up to an enormous sum over decades when the compounding effect is taken into account.
Dann says it seems the Government didn't expect the media to go so hard on the issue.
"They didn't do the extrapolation to the headlines that we do with KiwiSaver every day," said Dann.
"You can take very small numbers in KiwiSaver and look at them across a lifetime of a fund and they quickly blow up to the very big number that go into headlines. It then becomes an issue of how much you'll miss out on over the lifetime of your savings, which could be $20,000 or $30,000."
This narrative quickly became central in all the news stories on this issue.
"Looking at the way the Herald or the media [in general] works, we know that KiwiSaver stories are huge. Public interest in how KiwiSavers are performing is always enormous."
That public relations miscalculation by the Government quickly became a political attack line for opposition politicians.
National's Finance spokeswoman Nicola Willis said the change was "yet another tax grab by a Government that seems obsessed with dreaming up new ways to fleece New Zealanders of their hard-earned cash".
National Party leader Christopher Luxon also weighed in, saying that his party would stop this legislation.
National leader Christopher Luxon. Photo / Mark Mitchell
The criticism kept pouring in, including from fund managers who would be affected by the changes.
Pressure was growing on Revenue Minister David Parker, who sent out a second press release fewer than 24 hours after the first to announce that the GST changes would not be going through.
"It's disappointing this wasn't handled well from the start, but they have acted quickly to make the whole thing go away," says Dann.
"This is how politically sensitive things are at the moment. Labour can't afford to be giving soft serves to Christopher Luxon and National. That's why the whole thing is gone in less than a 24-hour news cycle."
While the collapse of the proposal comes down to a poor communications strategy, Dann says the cancellation really presents a missed opportunity to ensure that GST is applied to everyone - including the big Australian fund managers.
"This was really about taxing fund managers, which are really wealthy organisations - many of them Australian," says Dann.
This is also part of the reason Act leader David Seymour wasn't highly critical of the law change when it was first suggested.
The policy had a good idea at its core, but Dann says that the execution ultimately let it down.
Dann says this move was particularly ill-advised, given we actually need more incentives to encourage New Zealanders to save - not fewer.
"There is a process underway to look at settings and hopefully offer more incentives in the years ahead to make KiwiSaver more attractive to people to increase that savings rate," says Dann.
"In fact, that might have been the way to handle something like this. They should have perhaps given something back to savers to balance it up, while fixing the GST side of the equation at the same time. It should have been a case of the carrot and the stick."
