Wow – How closing the KiwiSaver tax loophole gave the Govt a springboard for a world-class policy somersault

The Ardern government  has  improved  its gymnastic  skills  and  this  week  executed one  of  its  fastest   somersaults  of  its  turbulent  career on  what  the  mainstream media  had  labelled  “the  KiwiSaver  tax  grab”.

Of  course, that label was a  misnomer.  Even so,  a  clever politician would have  sensed the  gathering  storm  long before   it  burst.

Even  now, the  government  is  left  fretting as  it  surveys  the  damage  done, rather  like  the Nelson residents  who lost  their  homes  last week.

It  was  Revenue Minister  David Parker  who  had   to  front the  media  to  do  what he  could  to  salvage  something from the wreck.

It  wasn’t  much. And  he might still get  most of the  blame for it all.

Here is  what  he had to  offer:   first, the  excuses for why  the  government  had  gone  ahead  with  it.

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

“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”.

Then he  tried  to  justify  the tax:

“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.”

A bit  of  obfuscation  followed:

“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,”  Parker said.

“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.”

Good  riddance,  most  Kiwisavers  will say.

Just    what  damage the  ill-considered tax-grab  calamity  has  had  on the Ardern  government  may  not be fully appreciated until the  results come in from the next  round of  opinion  polls.

But here at Point of Order we give credit to gold-medal-class gymnastics when the somersaulting is the prompt and proper response to an obvious miscalculation – or blunder.  We are puzzled about why the Government has failed to do the same with the folly of Three Waters.