Will Labour choke on its GST-free food policy?
The government's plan to exempt fresh fruit and vegetables from GST did not come as a surprise. Nor did the volley of criticism it received in response.
Mōrena and welcome to The Bulletin for Monday, August 14, by Catherine McGregor. Presented in partnership with Z Energy.
In today’s edition: The Greens unveil plans to get more solar panels on more houses; Bernard Hickey learns the secrets to constructing an affordable eco-home; Six months on from Cyclone Gabrielle, why has millions in disaster relief funding still not been paid out? But first, Labour’s GST-free policy has run straight into some very strong headwinds.
Voters hungry for Labour’s GST-free fruit and veg
After weeks of tax announcements and policy pledges from other parties, yesterday it was Labour’s turn to dangle a carrot in front of voters – and “not just any carrot, but a delicious, GST-exempt carrot”, as Toby Manhire puts it this morning on The Spinoff. The worst kept secret in politics was confirmed by prime minister Chris Hipkins and finance minister Grant Robertson: If Labour forms a government, GST will be removed from fruit and vegetables, both fresh and fresh-ish (more on that in a minute), from April next year. The policy is widely popular with the public. The NZ Herald’s Adam Pearse reports that a July poll by Labour’s pollster, Talbot Mills, found two thirds of all respondents in favour, as were a whopping 80% of swing voters. The policy will cost an estimated $2 billion over four years, with an average expected saving of $4 to $5 per household, per week – dismissed by National’s finance spokesperson Nicola Willis as “a tax change worth less than a kumara”.
A resounding thumbs down from economists
The policy may be popular with voters, but experts and commentators mostly hate it. The government has tried to allay one of their major concerns – that supermarkets won’t pass on the full saving to customers – by stating that the newly established Grocery Commissioner will monitor pricing behaviour and take action if necessary. However, unless the commissioner is given enormous resources to monitor the ever-changing daily price of fresh produce, “that claim may yet prove to have been the greatest boondoggle of all”, writes Businessdesk’s Pattrick Smellie (paywalled). This morning Stuff’s political editor Luke Malpass delivers perhaps the most scathing response so far. Under the headline ‘The idiot cousin of Labour’s craven desperation’, Malpass calls it “a contender for being the stupidest and most principle-free decision of a major party of this election campaign” (The Post, paywalled). Even the famously tax-averse Taxpayers’ Union has come out against the policy. "Tax purists will say we should not do this,” retorted Hipkins yesterday. "They will always be able to find a reason not to do something but they are not the ones struggling to pay their grocery bills."
A simple GST system made complex
What foods qualify? The government says the boundaries “will be based on whether the fruit or vegetable has been ‘processed’, meaning cooked or combined with other ingredients, explains Interest’s Dan Brunskill. “This rules out anything canned because of the heating process that accompanies canning.” Under these criteria, a prepared salad with croutons wouldn’t qualify, nor, presumably, would a frozen stir fry veggie mix with Chinese five-spice powder. The government will set up a special “consultative expert group”, convened by the Inland Revenue Department, to adjudicate on tough cases, reports Stuff’s Malpass, but critics aren’t convinced it will be enough. “Removing GST from specific items, while seemingly benevolent, has far-reaching implications. It introduces administrative complexity, bordering on the absurd,” writes the NZ Initiative’s Oliver Hartwich for The Australian. “The definition of what is and is not taxed becomes a battleground, sucking up legal resources and fostering market inefficiencies.”
Labour promises ‘meaningful’ changes to Working for Families
The GST exemptions wasn’t the only tax policy announced yesterday. Labour is also promising to increase the In-Work Tax Credit by $25 to $97.50 a week from April 2024, which social development spokesperson Carmel Sepuloni said will "deliver targeted meaningful cost of living support to around 160,000 low and medium-income working families". In addition, Working for Families will be tweaked to raise the abatement threshold (the income level at which payments begin to reduce) to $50,000 a year. “Combined with the GST cut, Labour estimates the immediate WFF changes will put about $47 a week in the pockets of households with working parents and children,” writes Businessdesk’s Smellie (paywalled). “It is a package designed to capture the attention of the working women that Labour needs to attract back, if its dwindling hopes of forming the next government are to be kept alive.”
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Greens promise financial support to encourage solar panel uptake
The Green Party has pledged to introduce a Clean Power Payment that will offer grants of up to $6000 to support the installation of solar panels, replacing gas installations with electricity, and better insulation in homes. It’ll also provide 10-year interest-free loans of up to $30,000 to cover the cost of additional “zero carbon” home upgrades. Upgrades would be tax-deductible for landlords of rental homes, but apply to a maximum of two rental properties; they would also need to stay rented for at least three years after the upgrades were installed. The Greens say the Clean Power Payment “will save households up to $1200 on their energy bills, every year, and slash carbon emissions,” reports RNZ. The Greens also want to scale up solar on Kainga Ora homes to 30,000 more households in the next three years. “The Clean Power Payment is as close to a perfect investment as you can get: slashing soaring bills for families, slashing emissions, and creating thousands of good jobs,” says Greens co-leader James Shaw.
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As R.Harp correctly states, All basic foodstuffs are GST free in the UK. Food sold by the restaurant / takeaways sector is however always taxed. Arguably, bread and dried, canned or fresh grains, meat and fish are more deserving of being GST free than fruit and veg, since one could starve on a fresh fruit and veg diet- or at least spend an awful lot of money to get the required amount of nutrition from it. Seems a lot like a paternalistic "eat your greens" crusade- and I say that as an enthusiastic grower and consumer of vegetables and former market gardener and orchardist.
The general public of Aotearoa-New Zealand are not fans of "experts" in Tax matters - I have been convinced for years by their careful explanations of the cost-benefits of a Wealth Tax & removing GST off fruit & vege i.e. with Wealth/Capital gains the complexity would mean the cost of administering would largely negate the amount collected (plus other downsides of avoidance etc.) and with GST on food also adding complexity costs.
HOWEVER, my blood boils when "experts" say the benefits of GST savings to "low income families" will ONLY be around $5 a week! This ignores the multiplier of switching from GST products that are less healthy to fresh fruit & vege (i.e. gains more than $5 in saving), the benefits of encouraging healthy food choices to the family and our health system, AND $5 is not nothing if you are not a wealthy tax expert! Just sayin' ...