(Bloomberg) -- New Zealand’s government has scrapped plans to tax the management fees paid by pension funds after an outcry over the impact it could have on savers.
The government will not proceed with a proposal to standardize the application of the Goods and Services Tax to fees and services of managed fund providers, Revenue Minister David Parker said in a statement Wednesday in Wellington. The u-turn, a day after the plan was revealed, follows criticism that the cost would be passed on to investors in the national KiwiSaver pension scheme and result in lower savings.
“Because of the importance of public confidence in KiwiSaver and the need to ensure nothing unduly affects New Zealanders’ willingness to save, the government will not to go ahead with the proposal contained in the Taxation Bill,” Parker said.
Opposition parties said the plan was evidence that Prime Minister Jacinda Ardern wants to increase taxes to pay for government spending, despite her pledge not to introduce any new levies this term. A general election is due to be held late next year.
Parker said the proposed change aimed to remove a loophole used by large financial companies, so they would have to align with how others in New Zealand pay GST. The move would also have brought New Zealand fund managers more into line with the approach in Australia, he said.
“Smaller fund management providers who were doing the right thing were at a competitive disadvantage compared to others, mostly larger providers, who were using the loophole,” Parker said. “Generally it’s bad to have these sorts of distortions in the tax system as bigger players can exploit them, but if the sector as a whole is happy to operate with the status quo then we will leave them in place.”
The changes, which would have taken effect from 2026, could have resulted in KiwiSaver pension funds being NZ$103 billion ($63 billion) less than they would have been by 2070, Treasury Department documents show.
While New Zealanders’ KiwiSaver contributions and balances were not going to be taxed under the legislation, “it is clear from the reaction to this proposal that it has caused concern for Kiwis,” Parker said.
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