The Government has made an abrupt U-turn over a proposal to include a 15% GST charge on KiwiSaver fees.
It will not be proceeding with the plan to put GST to fees and services of managed fund providers.
The proposal quickly received backlash, with National launching an attack and calling it a "tax grab on New Zealanders' Kiwisaver accounts".
Revenue Minister David Parker said the proposal would have "brought New Zealand fund managers more into line with the approach in Australia".
"Inland Revenue and Treasury advised this change be made to remove a loophole used by large financial companies, so they would have to align with how others in New Zealand pay GST."
Parker said that smaller Kiwisaver fund managers "who were doing the right thing were at a competitive disadvantage compared to others, mostly larger providers, who were using the loophole".
He said the large companies that were profiting from the current set-up were opposed to the change, while smaller providers were "more supportive".
"However since the announcement it has become clear that smaller providers now oppose it too."
Parker said that New Zealanders' KiwiSavers were not going to be taxed under the proposal.
National's Nicola Willis told 1News earlier that Inland Revenue advice to ministers included that the cost could be passed directly on to New Zealanders in the form of their KiwiSaver fees.
"The Financial Markets Authority was asked to look at this proposal and their view was that it would wipe $103 billion from the value of New Zealanders' retirement savings."
Parker said it was clear from the feedback that the proposal had caused concern.
"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," Parker said.
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