Legislation including a 15% GST charge on KiwiSaver fees was introduced to Parliament on Tuesday.
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, potentially costing some KiwiSavers around $20,000 by the time they reach retirement age.
Speaking to Breakfast hours before the Government made a U-turn on the proposal, Richard Klipin, chief executive of the Financial Services Council, said the change that was announced yesterday was an attempt "to try and simplify and in their words 'tidy up' some outstanding wrinkles in the system".
"There's about 2.9 million of us in KiwiSaver so that's a lot of people getting taxed a fair bit."
He said the KiwiSaver pool right now is around $84 billion, with around $27,000 in the average balance - and while some fund managers will absorb the cost to a degree, there's a point where it has to be passed on to the customer.
Richard Klipin thinks the new legislation misses the mark. (Source: Breakfast)
"15% GST on all of our savings, on the management fee component, adds up to a whole lot of money over a long period of time.
"When you forecast that out the numbers are pretty frightening.
"And look, we've said we're disappointed, we think they've landed in the wrong place, we think there's some more work to do because in the end, KiwiSaver is our nest egg, it's there for our retirement and the more you tax it, the less we're all going to have to live the kind of adequate and comfortable retirement that we all want to have."
Klipin said there is a cost of living crisis in New Zealand right now, and the Government should be supporting confidence in KiwiSaver "because the more you tinker with the system, the less confidence people have".
"That's why it's such an important issue.
"Tidying up loose ends makes complete sense, but when you impact just under three million people on their KiwiSaver funds plus their non-KiwiSaver funds, I think it's time to re-look at what we're trying to achieve here, and that's really our message."
Minister of Revenue David Parker told RNZ the change could mean more tax revenue for the government in coming years, but the move was made for the sake of consistency.
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