The ACT Party has unveiled a new policy proposal aimed at reforming the taxation of KiwiSaver accounts and removing the government contribution to the scheme, in an announcement made in Auckland ahead of the upcoming general election. The party’s plan would abolish the tax imposed on investment earnings within KiwiSaver and other superannuation accounts, allowing earnings to compound without being reduced by annual taxes. At the same time, ACT intends to eliminate the government contribution, which currently provides up to $260.72 annually to KiwiSaver members who receive employer contributions.

ACT leader David Seymour emphasized that the tax relief from removing the tax on investment returns would significantly outweigh the value of the government contribution, arguing this change would enable New Zealanders to accumulate greater retirement savings over their working lives. Seymour stated the policy aimed to reverse a system that taxes earnings repeatedly, thereby reducing the potential compounding growth of savings. He described the existing arrangement as a "money-go-round," benefiting bureaucracy more than savers themselves.

According to ACT’s projections, the policy would lead to a reduction in government revenue of approximately NZD 5 billion over four years—about NZD 4.1 billion related to KiwiSaver and NZD 900 million from other superannuation accounts. This loss would be partially offset by savings of around NZD 2.6 billion from scrapping the government contribution, resulting in a net fiscal cost of about NZD 2.4 billion for the government over the forecast period.

The party’s approach contrasts with other political parties’ proposals for their upcoming election campaigns. Both the National and Labour parties have proposed forms of compulsory KiwiSaver participation. National plans to require worker contributions with matching employer rates eventually increasing to 6%, alongside initiatives like baby kickstarts and support during paid parental leave. Labour focuses on mandating a 6% employer contribution rate while allowing greater flexibility for employee contributions.

ACT contends that its policy better supports voluntary saving by enhancing incentives rather than mandating participation. Seymour pointed out that long-term compounded returns could be significantly improved without tax on investment earnings, illustrating with case studies that individuals could see their KiwiSaver balances increase by tens or hundreds of thousands of dollars by retirement under the new regime. For example, a 20-year-old earning $60,000 annually might accumulate over $200,000 more by age 65.

Critics note that the benefits of the proposal may disproportionately favour those with larger account balances since tax-free compounding has a greater impact on higher investment sums. There is also concern about the removal of the government contribution, which provides a stable, predictable benefit to all eligible KiwiSaver members, particularly those with lower incomes.

ACT argues that the current government contributions partially compensate for revenues lost to taxation but that removing the tax on earnings and the government top-up delivers a stronger overall incentive for saving. The party’s proposal represents a significant shift in New Zealand’s retirement savings policy, focusing on reducing taxation on investment income while ending direct government subsidies to savers receiving employer contributions.