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Ben McKay

NZ government in super tax backtrack

NZ Opposition leader Chris Luxon has lashed the government over its supertax backdown. (Ben McKay/AAP PHOTOS) (AAP)

The New Zealand government has been forced into an embarrassing backdown on tax policy after realising its own reform would hit Kiwis' superannuation by millions.

And the winners are Australian-owned super providers, who can continue to dodge GST on fees, and the opposition, who made merry with the government's political blunder.

Revenue Minister David Parker confirmed the policy climbdown on Wednesday after introducing legislation on Tuesday.

At 8am, Mr Parker defended the government's tax streamlining bill on Radio NZ, saying it was important to close a loophole where some super providers claimed back tax from subcontractors.

At 1pm, he issued a press release saying the proposal was dead.

Mr Parker said the u-turn took place after he and Finance Minister Grant Robertson, Ms Ardern's deputy, consumed the morning's news.

"We reflected on the news media this morning and the furore we created in the undermining of KiwiSaver that was occurring and we thought it's not that important to us," he said.

"It's been terribly mis-reported by the media."

The Labour government wanted to ensure all managed funds and KiwiSaver providers paid GST on their service fees, but quickly realised their proposal would see those costs passed on to many Kiwis.

In echoes of Tony Abbott's vociferous style of opposition politics, National party leader Chris Luxon labelled it a "retirement tax" and lashed the government.

"People are so angry about it. How can a government pile on another tax in the middle of a cost-of-living crisis where everyone is doing it tough and just trying to get through it?" he told Three.

Inland Revenue calculated the tax take from the measure, when implemented in 2026, would be $NZ225 million ($A201 million) a year.

Modelling from the Financial Markets Authority suggested that would hurt KiwiSaver balances by $NZ103 billion ($A92 billion) by 2070.

Prime Minister Ardern said input from fund providers - who the government presumed wanted a level playing fund - was crucial.

"We thought we were fixing the system for those fund providers. We've heard very clearly from them, they don't believe that's what it would achieve. And so simply, we won't change it," she said.

In parliament, Mr Luxon - who garnered 18,000 signatures in 24 hours on a petition to abolish the changes - was gleeful.

"Absolutely fantastic. New Zealanders have been saved from another KiwiSaver tax," he said.

"I'd encourage them to keep u-turning because the country is going in the wrong direction very clearly ... thank goodness they've seen the light."

Mr Parker openly admitted it was an embarrassing episode, and that the loophole still stood.

"(Australian-owned super providers) are the big winners today."

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