{"id":636235,"date":"2026-10-20T11:34:16","date_gmt":"2026-10-20T11:34:16","guid":{"rendered":"https:\/\/www.newsbeep.com\/nz\/636235\/"},"modified":"2026-10-20T11:34:16","modified_gmt":"2026-10-20T11:34:16","slug":"act-should-go-further-kiwisaver-contributions-should-be-tax-free-not-just-investment-returns-richard-prebble","status":"publish","type":"post","link":"https:\/\/www.newsbeep.com\/nz\/636235\/","title":{"rendered":"Act should go further: KiwiSaver contributions should be tax free not just investment returns \u2013 Richard Prebble"},"content":{"rendered":"

Click here<\/a> for an alternative view: KiwiSaver election policies<\/p>\n

In ancient Greek democracy citizens gathered in the public square to debate proposals. Any citizen could contribute an idea.<\/p>\n

In that spirit, retired lawyer David Schnauer has written a remarkable book, Uncomfortable Economics: Decisions New Zealand Politicians Can No Longer Avoid.<\/p>\n

It should be compulsory reading for election candidates.<\/p>\n

Schnauer examines why New Zealand has slipped down the international wealth rankings. He identifies the cancellation of Norman Kirk\u2019s superannuation scheme as an important reason.<\/p>\n

He makes proposals for improving KiwiSaver that we should be debating.<\/p>\n

New Zealand is one of only three OECD countries taxing both retirement savings contributions and investment earnings, and the only one offering no tax relief.<\/p>\n

Other countries give savers substantial tax advantages.<\/p>\n

KiwiSaver is designed so that the biggest beneficiary is the Government.<\/p>\n

Consider the taxation.<\/p>\n

Employees contribute from after-tax wages. Employer contributions are also taxed.<\/p>\n

Then investment earnings are taxed every year.<\/p>\n

Only the final withdrawal is tax-free.<\/p>\n

Compare Singapore.<\/p>\n

In Singapore, compulsory contributions receive tax relief. Investment earnings and withdrawals are tax-free.<\/p>\n

Singapore\u2019s Central Provident Fund had S$689 billion as of June 30, equivalent to more than $900b ($937b). KiwiSaver had around $147.7b as of June 30, according to the latest Morningstar survey.<\/p>\n

Singapore\u2019s scheme is older, and contributions are much higher.<\/p>\n

Nevertheless, Schnauer demonstrates how taxing contributions and investment earnings substantially reduces the wealth accumulated.<\/p>\n

He estimates the Government\u2019s annual tax take associated with compulsory KiwiSaver at around $4b.<\/p>\n

That is money that could instead be building the country\u2019s investment capital and New Zealanders\u2019 retirement savings.<\/p>\n

I have an example in my family.<\/p>\n

Poor health forced a member of my family out of the workforce 10 years ago. He recently told me that, despite leaving his KiwiSaver untouched, the capital had hardly increased.<\/p>\n

The investment fund he chose is part of the explanation. But every year the Government has also taxed his investment earnings.<\/p>\n

Compound interest is supposed to be the miracle of retirement savings. Taxing the returns year after year diminishes that miracle.<\/p>\n

I believe David Seymour is right to have Act campaigning to make KiwiSaver investment earnings tax-free.<\/p>\n

Over a working lifetime the difference would be substantial.<\/p>\n

The proposal would also benefit retirees.<\/p>\n

People over 65 can put savings into KiwiSaver and withdraw them when needed. Making the earnings tax-free would increase the return on their savings.<\/p>\n

It might end the sorry spectacle of successive generations of retirees losing billions chasing higher returns.<\/p>\n

Critics complain that tax-free KiwiSaver means the higher your income the wealthier KiwiSaver would make you.<\/p>\n

What is wrong with making Kiwis wealthy?<\/p>\n

Lower-income savers would benefit too.<\/p>\n

But Act should go further. Contributions should also be tax-deductible.<\/p>\n

This would make saving more affordable, especially for those on modest incomes.<\/p>\n

A sufficiently attractive voluntary scheme would make compulsion unnecessary.<\/p>\n

I have known people with hereditary illnesses who knew they would not live to retirement.<\/p>\n

Compelling them to save for a retirement they will never enjoy is barbaric.<\/p>\n

There is, of course, a problem.<\/p>\n

The Government is already running a deficit. Giving up billions in tax revenue would make it worse.<\/p>\n

Schnauer does not duck the issue.<\/p>\n

He turns to Parkinson\u2019s Law.<\/p>\n

Cyril Northcote Parkinson famously observed that work expands to fill the time available for its completion. He also found that bureaucracies expand regardless of the amount of work.<\/p>\n

As Britain\u2019s navy shrank, its administration grew. As Britain gave its colonies independence, the Colonial Office expanded.<\/p>\n

Schnauer provides New Zealand examples.<\/p>\n

In 2017, Corrections employed 9000 staff looking after 10,479 prisoners.<\/p>\n

By 2023, it employed 10,000 staff looking after just 8610 prisoners.<\/p>\n

Under Labour, the Ministry for Business, Innovation and Employment\u2019s workforce increased from 3366 to 5879, a rise of 74%.<\/p>\n

Schnauer calculates that returning public service staffing to around its 2017 level would save $8 billion annually just in salaries.<\/p>\n

That is more than enough, on his figures, to finance substantial reform of KiwiSaver taxation.<\/p>\n

Parkinson calculated that bureaucracies tend to grow by around 5.75% annually, regardless of workload.<\/p>\n

If Nicola Willis had read Parkinson, she might have realised that demanding a 6% reduction was little more than cancelling one year\u2019s bureaucratic growth.<\/p>\n

We have an election in which politicians propose compelling citizens to save more while continuing to tax their savings.<\/p>\n

Yet the question of whether we could create a better retirement scheme by taxing less and spending less is scarcely being discussed.<\/p>\n

In a functioning democracy, Schnauer\u2019s book is what we should be debating.<\/p>\n

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