ACT promises to scrap tax on KiwiSaver earnings and end the Government contribution for most workers

ACT would stop taxing the investment earnings inside KiwiSaver accounts, leader David Seymour told the party’s election campaign launch in Auckland on Sunday, in a plan that would cost about $2.4 billion over four years and end the Government’s annual contribution for most working savers.

The pledge sets up a clear contrast with the two major parties five weeks out from the 7 November election. National and Labour have both promised to push more money into KiwiSaver by making contributions compulsory. ACT wants to leave joining voluntary but let the money grow untaxed.

“Other parties want to force your money into KiwiSaver, then tax you,” Mr Seymour said, RNZ reported. “ACT says it should be your choice, but if you save for the future we will let you get the full benefit of compounding returns instead of taxing you every step of the way.”

The math of compound growth

He framed the policy around the arithmetic of compound growth. “Interest on interest, year after year, grows your KiwiSaver balance exponentially,” he said, according to the Otago Daily Times. Mr Seymour told the launch that every dollar taken in tax on earnings also takes away all the future growth that dollar would have produced.

At present KiwiSaver funds pay tax on their returns each year. Most schemes are portfolio investment entities, where members are taxed at a prescribed investor rate of 10.5, 17.5 or 28 per cent depending on their income, while widely held superannuation funds pay 28 per cent, interest.co.nz noted. Under ACT’s plan those earnings would no longer be taxed at all.

To show what that could mean, ACT used the example of a 20-year-old builder on a $60,000 salary. The party says that worker would retire at 65 with an extra $209,486 in their account under its policy.

Fiscal costs and policy trade-offs

The trade-off is the Government contribution. Members aged 16 to 65 earning up to $180,000 can currently get up to $260.72 a year from the Crown if they put in at least $1,042.86 of their own money between 1 July and 30 June. ACT would scrap that payment for anyone who also receives employer contributions, replacing it with what the party described as “substantially greater tax relief” inside their accounts. People without an employer contributing, such as many self-employed savers, would appear to keep the Government top-up.

ACT’s own costings break the package into three parts over the four years from 2027/28 to 2030/31. Removing tax on KiwiSaver earnings would cost $4.082 billion. Extending the same treatment to other superannuation schemes outside KiwiSaver would cost a further $904 million. Ending the Government contribution for employed members would save $2.59 billion. That leaves a net cost of $2.396 billion, or roughly $600 million a year once the savings are counted, although the gross hit to the tax take is closer to $1 billion a year.

The party said “sensitive rules” would be put in place to protect the integrity of the tax system and make sure KiwiSaver stays a genuine retirement savings vehicle rather than a tax shelter. It has not yet released those rules, and said its fully costed fiscal plan would come later in the campaign.

Broader political landscape

Mr Seymour pitched the announcement as part of what he called a “productivity election”. He asked the crowd “Where does wealth come from?” and argued that a country builds wealth when more people own assets, hold savings and invest in productive enterprise, according to interest.co.nz.

The NZ Herald pointed out that because the policy removes tax on returns, its value grows with the size of a member’s balance. People with large KiwiSaver accounts would gain the most in dollar terms, while the $260.72 Government contribution is worth proportionally more to low earners and to people just starting to save. Mr Seymour said the change meant “more of your investment returns stay invested and more of your money is left to compound over your working life.”

The policy lands in an election campaign where retirement savings has become one of the main battlegrounds. National has promised to make KiwiSaver compulsory for people in work from 1 July 2028, with employee and employer contributions both rising to 6 per cent by 2032 and $1500 for every newborn to start an account, RNZ reported in September. Labour would instead make only the employer contribution compulsory, also lifting it to 6 per cent by 2032, while letting workers pause or reduce their own payments.