Editorial: Announcement to take GST on Kiwisaver fees bombs

Revenue Minister David Parker introduced and reversed a proposal to charge GST on Kiwisaver fund providers in a remarkable about-turn this week. Photo / Mark Mitchell

EDITORIAL

The Government seemingly dropped a bombshell on the public this week, with the fallout potentially spreading to every one of the three million members of the KiwiSaver scheme. Yesterday afternoon, Revenue Minister David Parker abruptly shelved the idea.

It was estimated new Goods and Services Tax (GST) rules would net the Government an additional $225 million in tax each year by "streamlining" the way fees on managed and KiwiSaver funds are taxed. Financial agencies and GST experts promptly warned the tax would be passed on via increased fees and hit KiwiSaver balances hard.

The Opposition described the move as "yet another tax grab ... to fleece New Zealanders of their hard-earned cash". Firstly, some perspective. A 2018 OECD report found New Zealand was second only to Sweden in the lowest tax advantages for investing for retirement. KiwiSaver members have their pay taxed before the KiwiSaver contribution goes out, the employer contribution is taxed before it goes in and investment returns are also taxed.

Deloitte GST partner Allan Bullot said superannuation funds had always been GST exempt. Other managed funds had been subject to an effective 1.5 per cent GST rate after a compromise between the industry and the tax department subjected 10 per cent of the fund to GST and exempted 90 per cent.

National's lambasting of the proposal was tempered somewhat by Act offering some support, in keeping with the party's overall philosophy to "low-rate, broad-based taxes" with all goods and services treated equally for fairness and simplicity. Putting the merits or criticisms of the proposal to one side, the way the tax bill was introduced to the public was hamfisted at best, and underhanded at worst. The press release issued by Parker's office on the Taxation (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill made no mention of KiwiSaver or its providers.

The release focused on public transport becoming exempt from fringe benefit tax. It is fair enough to highlight a "positive" aspect of the legislation. But the media statement then noted other proposals as a requirement for digital platforms to collect GST on ridesharing, food and beverage delivery, and short-stay and visitor accommodation provided in New Zealand and return it to the IRD. "The Bill also addresses ... how the various employer taxation requirements, such as PAYE, FBT and employer's superannuation contribution tax, apply in a cross-border situation."

An inclusion of the move could have couched the proposal in terms of international comparisons, fairness to harder-hit GST areas, and in taking a reasonable return from overseas-based KiwiSaver providers. To downplay a major impact is one matter, to fail to mention it at all would seem to be priming the fuse on a political incendiary and handing the opposition a match.

Inevitably, the Government had little recourse but to snuff it out.