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 percent goods and services tax.
Minister of Revenue David Parker said the change could mean more tax revenue for the government in coming years, but the move was 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 would likely flow through to retail investors in the form of higher fees.
Financial Markets Authority modelling showed it could also shave an estimated $103 billion from KiwiSaver funds by 2070.
Simplicity fund manager Sam Stubbs said a tax on KiwiSaver fees amounted to a wealth tax.
KiwiSaver account owners would not necessarily get the increase in charges all at once, Parker said.
"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 would 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 said while the charges were GST, KiwiSaver members he had spoken to viewed 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 said.
Financial Services Council (FSC) chief executive Richard Kilpin said the council was disappointed with the government's approach.
The plans were a "a bad outcome and ... the bill overreaches", he said.
"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 would 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".
