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David Parker confirmed the government would not proceed with the GST changes yesterday afternoon (Photo: RNZ / Angus Dreaver)
David Parker confirmed the government would not proceed with the GST changes yesterday afternoon (Photo: RNZ / Angus Dreaver)

The BulletinSeptember 1, 2022

Tax grab to tax gone in 22 hours

David Parker confirmed the government would not proceed with the GST changes yesterday afternoon (Photo: RNZ / Angus Dreaver)
David Parker confirmed the government would not proceed with the GST changes yesterday afternoon (Photo: RNZ / Angus Dreaver)

The plan to add GST to Kiwisaver and managed fund fees was swiftly brought down in under 23 hours. Was it actually a bad plan or was it badly landed, writes Anna Rawhiti-Connell in The Bulletin.

 

A backdown at breakneck speed

The government’s proposed plan to levy GST on Kiwisaver and managed funds was ditched yesterday afternoon. I am kicking myself for squandering the headline “tax on, tax off” last month. I think it’s worth examining how it went from little-known to cancelled very fast, even by today’s social media standards. Quick timeline: the Speaker took the chair at 2pm on Tuesday where the bill in question was set down for its first reading. Stuff’s Rob Stock broke the story at 3.35pm that afternoon, it blew up very quickly with many detracting opinions ready to go. “Tax Grab” led the frontpage of the Herald yesterday morning. The opposition leader called it a retirement tax on Newshub’s AM and at 1.18pm yesterday I saw a screengrab of the statement that said the government wasn’t proceeding with the plan.

Discussion document on the proposal first issued in February 2020

The NBR’s Hamish McNicol (paywalled) spoke to a couple of tax experts in the wake of the cancellation. PwC’s Geof Nightingale told him that a discussion document on the proposal had first been issued in February 2020. As a tax partner at a large firm, Nightingale is of course correct. Here it is. As a crack compiler of news, I deployed the PDF search tool to find the relevant references. In short there was consultation on the issue, identification of unfair competitive advantage with the status quo by favouring certain types of managed funds and business structures, a range of law change options and some handy questions for submitters.

A chance to clean up “a mess” lost?

Nightingale also said the application of GST to fund management services was “a mess” and needed sorting. “There was complexity for the IRD to administer and complexity for people to comply.” That cost of compliance is noted in the discussion document as something that “can also add costs to managed funds products”. Nightingale also said that it would have been unlikely for pricing for Kiwisaver members to have been impacted by 15%. EY partner Aaron Quintal said there was no stronger argument to exempt Kiwisaver fees than there was for exempting GST on fresh fruit. Not all tax specialists are alike however. Deloitte tax specialist Allan Bullot told RNZ’s Checkpoint Kiwisaver members would save a lot less money as a result of the proposed tax.

An unforced handling error

A mere three hours before the u-turn, the Gone by Lunchtime team discussed the plan. Ben Thomas thought it was a bit mischievous to include the $103b tax take figure in the Herald’s headline as that’s over a 70-year time frame. Toby Manhire asked how is it, with the size of “the communications industrial complex and the government”, that the government seems to be playing into the hands of an opposition –“looking like this has been done on the hoof”. Stuff’s Tom Pullar-Strecker has written a fairly cool-headed assessment of what happened. Finally, BusinessDesk’s Pattrick Smellie lands a (paywalled) deathblow, writing: “The prime minister, and the finance and the revenue ministers must have been asleep at the wheel… There can be no other explanation for one of the most remarkable political blunders of recent times and for its almost instant demise.”

Keep going!