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As reported yesterday, the government's plans to put 15% GST onto Kiwi Saver fees created a stupendous uproar, to the extent the plans were binned 24 hours after being announced. The might of the KiwiSaver provider industry, together with the Nats, made the government look like robbers by getting this headline onto front page news:

Government quietly introduces $103 billion tax on KiwiSaver

It's such a big headline it could even cost the government the next election. According to the NZ Herald, it got created out of some "modelling" from the Financial Markets Authority (FMA) which argued that the tax and its compounding effects will dent Kiwi Saver balances by $103 billion by 2070.


And yet myself - and several of my colleagues - have little idea where this figure came from. First, there's only around $80 billion of funds invested in KiwiSaver at present. Second, the proposed "New tax rules will see the Government net an additional $225 million in tax each year". Turning $225 million into $103 billion requires either high rates of returns or large predicted increases in the total contributions & size of Kiwi Saver funds, or both!?


Anyhow, lets take the FMA's number at face value. The GST tax was planned to be set at 15% of Kiwi Saver Provider Fees. So if 15% of Fees = $103 billion, then solving for Fees gives $687 billion (=$103 billion / 0.15).


Consequently, my question to those who were so keen to see the "$103 billion tax grab" headline is:


Do you thereby concur that the total effect of Kiwi Saver fees extracted by the fund managers will be to dent KiwiSaver balances by over half a trillion dollars, compounded to 2070?


If that is so, isn't this a gigantic scandal about the size of Kiwi Saver fees? Taking the FMA at their own published word, it would appear that the funds management industry is intent on shaking down Kiwis over the next 50 years for an amount of money that will dramatically affect the retirement wealth of the nation. The GST story is but a side-show.


Sources:

https://www.nzherald.co.nz/nz/government-quietly-introduces-103-billion-tax-on-kiwisaver/OZTZMO6QKJJQOTUL5DG7UFEWA4/


In the few hours since our last blog, which described how our nation's economic policy has descended into "comedy" as Labour tried to put GST onto the already-highly-inflated Kiwi Saver fees charged by big financial institutions, with National opposing the move, the comedy has turned into farce as Labour has just decided to abandon such proposals.


Neither of our two main political parties was prepared to address the root of the problem which was described in our last blog - namely the size of the rip-off fees that are being charged by the managed funds whose long-run performance, after deducting fees, is worse than the market-average.


The only truth to emerge from this reversal is that, even after all of the trouble caused by the banks during the Global Financial Crisis of 2008, and even with a Labour Party in power in NZ, the PM and her Ministers of Finance & Revenue are prepared to reverse policy within around 24 hours of announcing it because the bankers weren't happy.


Sources:

https://www.1news.co.nz/2022/08/31/govt-makes-u-turn-on-kiwisaver-fee-gst-proposal/


 

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Robert MacCulloch