Responding to ACT's proposal to remove tax on KiwiSaver investment earnings, Taxpayers' Union Policy Analyst Austin Ellingham-Banks said:
“ACT is right to stop taxing KiwiSaver investment earnings. If the goal is to help people build bigger retirement savings, taxing the returns along the way makes little sense."
“Other parties want to force workers to save more, tax the returns, then recycle some of that money back through subsidies. ACT's approach is much cleaner, stopping punishing people for saving in the first place."
“But ACT could go further. Contributions and investment earnings should both be tax-free, with tax instead paid when the money is withdrawn in retirement."
“For a worker earning $60,000, that would mean an extra $997.50 going into KiwiSaver each year instead of being lost to tax. That rises to $1,737 on $80,000 and $2,310 on $100,000."
"That means more money goes in, more stays invested, and more compounds. Savers build bigger balances, while tax is still paid at the end."
“Super reform is coming whether politicians admit it or not. The more Kiwis can save for themselves, the better prepared they'll be. The tax system should be helping them do that, not penalising them.”
Notes to editors
“ACT is right to stop taxing KiwiSaver investment earnings. If the goal is to help people build bigger retirement savings, taxing the returns along the way makes little sense."
“Other parties want to force workers to save more, tax the returns, then recycle some of that money back through subsidies. ACT's approach is much cleaner, stopping punishing people for saving in the first place."
“But ACT could go further. Contributions and investment earnings should both be tax-free, with tax instead paid when the money is withdrawn in retirement."
“For a worker earning $60,000, that would mean an extra $997.50 going into KiwiSaver each year instead of being lost to tax. That rises to $1,737 on $80,000 and $2,310 on $100,000."
"That means more money goes in, more stays invested, and more compounds. Savers build bigger balances, while tax is still paid at the end."
“Super reform is coming whether politicians admit it or not. The more Kiwis can save for themselves, the better prepared they'll be. The tax system should be helping them do that, not penalising them.”
Notes to editors
- Under the Taxpayers' Union proposal, KiwiSaver would move to an exempt-exempt-taxed model:
- Employee contributions would be deducted before PAYE is calculated, with the resulting PAYE saving paid into the worker's KiwiSaver, so take-home pay is unchanged.
- Employer contributions would no longer be subject to ESCT, so the full employer contribution would reach the worker's account.
- Investment earnings would be tax-free.
- Withdrawals would then be taxed as income in retirement.
- Figures assume the default contribution rate of 3.5 percent from 1 April 2026, with the employer contributing 3.5 percent on top of salary. They use current IRD PAYE rates and ESCT thresholds.
- PAYE. Employee contributions are calculated on gross pay but deducted from after-tax pay. The PAYE figure is the income tax charged on the slice of pay used for the contribution, at the worker's marginal rate:
- $60,000: contribution of $2,100 at 30 percent = $630
- $80,000: contribution of $2,800, of which $900 falls in the 30 percent bracket and $1,900 in the 33 percent bracket = $897
- $100,000: contribution of $3,500 at 33 percent = $1,155
- ESCT. The ESCT rate is set by salary plus the employer contribution:
- $60,000: $62,100 falls in the 17.5 percent band, so ESCT on $2,100 = $367.50
- $80,000: $82,800 falls in the 30 percent band, so ESCT on $2,800 = $840
- $100,000: $103,500 falls in the 33 percent band, so ESCT on $3,500 = $1,155
