The Government's canned proposal to include a 15% GST charge on KiwiSaver fees was a "stealth, wealth tax" that would have cost the average New Zealander tens of thousands of dollars, a KiwiSaver provider says.
New Zealanders don't currently pay GST on KiwiSaver fees and the change would give the Government another $225 million in tax each year from 2026 onwards.
READ MORE: Govt makes U-turn on KiwiSaver fee GST proposal
The legislation passed its first reading in Parliament on Monday, but was quickly canned on Tuesday after backlash from National as well as both large and small KiwiSaver providers.
Simplicity's managing director Sam Stubbs told 1News on Tuesday afternoon he thought the proposed tax was "a big deal" that had been "buried" at the end of a tax bill by the Government.
"I thought this was a very significant change in tax policy and would've ended up costing, by the Government's own estimates, New Zealanders about $225 million a year in extra fees. That would have meant about $27,000 less for the average KiwiSaver when they've retired," Stubbs said.
The average balance of a KiwiSaver fund is $27,000.
"It was very unusual that this was almost buried at the end of a tax bill and the minister didn't specifically refer to it when it was introduced because it's a really big deal.
"The other thing is that this really would've opened a can of worms in terms of how financial services are taxed. You start off with KiwiSaver but does it start affecting your term deposits, your mortgage, all those sorts of things. There's a reason why financial services don't have GST on them. It's because it's extremely complex and can be very expensive for the average New Zealander.
"Had it been introduced this would have been a stealth, wealth tax. Effectively this would have been taxing people for saving for their retirement."
Stubbs said given KiwiSaver was already taxed at the employer level and in the fund itself, more tax could have turned a lot of people off the scheme, which would only be detrimental to the country's future.
"This was the feeling that this was another tax and another disincentive to save in KiwiSaver and we all need KiwiSaver to work because it's going to both fund our retirements and a lot of the infrastructure demands that we will have in the next 10, 20, 30 years," Stubbs said.
Revenue Minister David Parker said reversing the proposal was the "right thing to do". (Source: 1News)
Revenue Minister David Parker said the Government had thought smaller KiwiSaver fund managers would have been in favour of the proposal as they were at a disadvantage given larger companies were using a loophole and profiting from the current set up.
READ MORE: Opinion: KiwiSaver flip-flop will be hurting Labour
"However since the announcement it has become clear that smaller providers now oppose it too," he said on Tuesday.
Therefore, he said, reversing the proposal was the "right thing to do".
Prime Minister Jacinda Ardern said the proposal was aiming to "even up the playing field for fund managers" but that it was more important that KiwiSaver was not being seen to be undermined.
"We thought we were fixing the system for those fund providers. We've heard very clearly from them they don't believe that's what it would achieve and so, simple, we won't change it," Ardern said.
National were quick to take aim at the Government over the policy, with deputy leader Nicola Willis claiming it showed that "Labour cannot manage money".
"When they run out of money from their addiction to spending they come after yours," Willis said.
"They were prepared to sneak through a tax, we caught them out, we stopped this one. But you can be sure they will be dreaming up new ways to fleece New Zealanders and National will be on the look out for more of this to come."
National leader Christopher Luxon said he hoped Labour "keep U-turning" on other policies.
"I'd just encourage them to keep U-turning because the country is going in the wrong direction very clearly and maybe they could work on the tenant tax, maybe they could work on the car tax, maybe they could work on the fuel tax, there're a lot of options for them to keep going," Luxon said.
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