Point of Order: 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.

Point of Order is a blog focused on politics and the economy run by veteran newspaper reporters Bob Edlin and Ian Templeton