Well this happened quickly.
Yesterday the Government introduced the Taxation (Annual Rates for 2022/23 Platform Economy and Remedial Matters Bill, a rather technical bill that among its provisions sought to ensure that all Kiwisaver account providers, not just some, charged GST for their services.
Then by lunchtime today the GST changes for Kiwisaver account providers was gone.
First of all the context.
Under the GST regime the provision of financial services is exempt. The definition is complex but in general terms it is meant to exempt banks from charging GST on bank services. Some small Kiwisaver providers as a matter of caution apply GST to the fees that they charge the accounts they manage. The big banks, less so.
Looking at my not large account which is close to the average and is with ASB Kiwisaver Scheme last year I paid $158.94 in Investment Management fees. If GST was charged then I would pay $23.81 more for that service per annum. This is less than 0.1% of the fund’s worth.
The Government expected that the change would raise $225 million on Kiwisaver accounts from 2026. This suggests, presuming that the current figure of 3.1 Kiwisaver accounts does not change and that the accounts which pay GST are very small in number that the increase in Investment Management Fees per account would be in the vicinity of $80 per year on average. There must be a few considerably larger and more complex and perhaps higher charged accounts than mine.
And thanks to the power of compound interest if you made various assumptions and looked deep into the future some pretty dramatic figures are revealed.
National and the big financial providers weighed in. From Interest.co.nz:
Luxon … told Newshub: “This is now a retirement tax on top of all the other taxes that we’ve had.”
“We’re going to stop it. I actually think the team of five million people needs to stand up this week and actually say to the Government, ‘Enough, stop’ and actually get the Government to withdraw it,” Luxon said.
“This is such a bad idea – a retirement tax when we’re trying to encourage people into KiwiSaver, it makes no sense.”
Financial Services Council CEO Richard Kilpin said the council was disappointed with the bill that was over-reaching.
“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,” Kilpin said.
Deloitte tax specialist Allan Bullot told Newshub the move was a sledgehammer.
“Everybody that I’ve talked to that’s got a KiwiSaver fund and is talking and looking at this have told me that they consider it to be a brand new tax,” Bullot said.
“Technically, is there a new tax that someone’s invented? No. Are we coming and looking at something that hasn’t been subjected to tax since 1986 and saying, ‘We’re going to change the legislation’… [it] sounds like a new tax.”
Others called it a wealth tax. As if this was a bad thing.
The comments are deeply disingenuous. The charges do not start until 2026 and will have absolutely no effect on current cost of living pressures. And besides they affect the eventual amount paid out by Kiwisaver funds, not most people’s incomes for years to come. Financial Services Council CEO Richard Kilpin needs to go back to school and by the look of his comprehension back to primary school.
National’s attacks are really rich. Ever since its creation National has sought to undermine Kiwisaver. Do you remember when:
The GST change figures are miniscule in comparison. Let’s put figures on this, $80 a year in GST verses a loss of $520 a year in state contributions or $1,000 in the kickstart amount.
They have always been philosophically opposed to Kiwisaver. For them to prance around now and claim to be protectors is deeply, deeply disingenuous.
The Government has backed down. From a political standpoint I can understand this. But I wonder if with all of the noise thrown up recently that we have not instituted a rational change which would have meant that large Kiwisaver providers were treated the same as small Kiwisaver providers and which would have placed the Government in a better position to address poverty, Health sector pressures and climate change.
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