Following much criticism and uproar from finance professionals, opposition politicians, the fund sector, and the general public, the government has halted plans to boost GST on fees for managed funds and KiwiSaver which would have increased tax collection by about $225 million a year, from 2026. This would come from increasing rates to the standard level of 15%.
These changes were included in the Taxation Bill covering Annual Rates for 2022-23, Platform Economy, and Remedial Matters. The government withdrew the proposal less than a day after putting it forward following the negative backlash.
Calculations done by the Financial Markets Authority (FMA), including compounding effects, found that with such a change, KiwiSaver funds would lose up to $103 billion as of 2070. The loss would be against overall KiwiSaver fund balances of $2,196 billion by 2070. It was also found that Non-KiwiSaver balances could also be expected to lose $83 billion against fund balances of $1,757 billion in 2070.
The FMA advised the Inland Revenue Department (IRD) that the fees would be passed on to savers in the form of increased fees. The IRD then warned the government of the same, stating that Kiwis were at risk of losing thousands of dollars in savings over their lifetimes. The FSC, which has participated in the consultation process, has stated that the bill was overreaching and did not offer the best outcome. The Financial Services Council (FSC) noted that it would be a suboptimal outcome to increase taxes that would result in increased fees on consumers of KiwiSaver and managed funds during a cost-of-living crisis.
KiwiSaver providers have however criticised the move, saying the cost of the increased tax would be passed on to savers. National’s Deputy Leader and Finance spokesperson, Nicola Willis, agrees and stated that this was another tax grub by the government that appeared to be obsessed with finding new ways of fleecing Kiwis of their earnings.
Revenue Minister, David Parker, defended the plan saying it was intended to correct the inconsistent treatment of GST-able services and that it would involve a long transition period. He added that the Treasury and Inland Revenue had recommended this change to help remove a loophole that larger financial companies were taking advantage of. He claimed that smaller fund providers that were doing the right thing were at a competitive disadvantage compared to larger providers using the loophole. As he confirmed that the proposal was being withdrawn, he stated that as long as the sector as a whole was accepting of the status quo, the government would leave the situation as is.
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