It was a case of ‘hello … goodbye’ for the New Zealand government’s plan to impose GST on KiwiSaver fees and other fund management fees.
A press release from Revenue Minister David Parker on Wednesday announced that the surprise proposal, included in an omnibus bill quietly introduced to parliament on Tuesday, would be dropped.
The announcement followed fierce backlash to the plan, which the government hoped would have netted it NZ$225 million in revenue.
Many on social media wrongly believed their superannuation contributions and balances would be taxed, adding to a firestorm of angry reactions.
But media and the opposition National and ACT parties quickly latched onto an estimate by the FMA in the regulatory impact statement that the proposed changes would reduce KiwiSaver funds under management by NZ$103 billion and non-KiwiSaver managed funds by NZ$83 billion by 2070. Talking to reporters at parliament, Parker described this advice as an oversimplification.
"It depends what would be the competitive response to fees. New Zealand fees are already higher than they are in Australia even though in Australia they already have the GST treatment that we were proposing," he said.
The 'surprise' element of the proposal, perceived as an attempt to quietly sneak the change through, was probably a large part of its downfall. As commentators pointed out, the press release rescinding the ‘GST on fees’ plan explained the government’s reasoning behind it better than anything it released prior to the backdown.
In his statement, Parker said Inland Revenue and Treasury had advised the 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," his statement 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.
“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.
Parker said that "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."
A clearly chastened Parker told media the idea would not be floated again.
"Maybe I shouldn't have been surprised at how well banks defend their profits. They're the owners of the big KiwiSaver firms," he said. "They [the banks] are the big winner today".