The Government will not proceed with a proposal to standardise the application of GST to fees and services of managed fund providers.

This follows the previous Government announcement to charge GST on fees paid on KiwiSaver accounts from April 2026, which potentially would have netted hundreds of millions more in taxes.

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.

The move would also have brought New Zealand fund managers more into line with the approach in Australia.

'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,” says David Parker.

'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.

'During extensive consultation views were mixed on the merits of the technical change. The large companies profiting from the current set-up were opposed to the change, while smaller providers were more supportive of the change. This was because these providers who did charge the full GST on their service fees faced unfair competition from the bigger players.

'However since the announcement it has become clear that smaller providers now oppose it too.

'It's important to clear up some inaccurate representation of the proposal. New Zealanders' KiwiSaver contributions and balances were not going to be taxed under this legislation. However it is clear from the reaction to this proposal that it has caused concern for Kiwis,” says David Parker.

'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. When last in Government National ditched the Kick-Start payment and introduced a tax on employer contributions,” says David Parker.

'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 (Annual Rates for 2022–23, Platform Economy, and Remedial Matters) Bill.”

The government intends to charge GST on fees paid on KiwiSaver accounts from April 2026, potentially netting it hundreds of millions more in taxes.

The proposed tax bill was introduced to parliament on Tuesday to change the way the tax is applied to service fees charged by managed funds, which are currently exempt from the 15 per cent goods and services tax.

Minister of Revenue David Parker says the change could mean more tax revenue for the government in coming years, but the move is being made for the sake of consistency.

A regulatory impact statement from Inland Revenue indicated the proposed change could add about $225 million a year to government coffers from 2026, a cost that will likely flow through to retail investors in the form of higher fees.

Financial Markets Authority modelling shows it could also shave an estimated $103 billion from KiwiSaver funds by 2070.

Simplicity fund manager Sam Stubbs says a tax on KiwiSaver fees amounts to a wealth tax.

KiwiSaver account owners will not necessarily get the increase in charges all at once, Parker says.

"That payment is transitioned into over quite a long period of time - I think it's three years from memory - and over that time the market will respond accordingly.

"If fees are already at a very competitive rate, that might flow through [to] fees. If they're not, it may well be that there's no effect on fees."

Deloitte tax specialist Allan Bullot told Checkpoint KiwiSaver members wil save a lot less money as a result.

"This is going to be a pretty significant change.

"One investor for example, after 25 years this change would drop the level of savings that they had by the end of the period by over $20,000."

Bullot says while the charges are GST, KiwiSaver members he has spoken to view it as a new tax.

The FMA estimate that by 2070 the tax change would decrease the cumulative KiwiSaver balance by more than $100 billion was "mind boggling", he says.

Financial Services Council chief executive Richard Kilpin says the council is disappointed with the government's approach.

The plans were a "a bad outcome and ... the bill overreaches", he says.

"The FSC has been a constructive participant in the consultation process and whilst we appreciate the efforts of the IRD to engage effectively, on the GST on managed funds and KiwiSaver issue there is much more work to be done to get the right outcome for New Zealand.

"In the middle of a cost of living crisis, increasing taxes that are then likely to increase the fees that consumers pay to invest in KiwiSaver and managed funds, and potentially decrease returns, is a suboptimal outcome."

But Parker told RNZ the change will set right an imbalance.

"We're not making any change to principle, Inland Revenue believe that these changes are necessary to align current practice with the underlying principles in the law.

"There is inconsistent treatment of GST of all services, depending on the way in which people currently invest... I think that it's important that the tax system reflects the underlying principles that financial services are meant to be exempt from GST, but services that are not a financial service are meant to be GST-able".