NEW REPORT: Spoilt Policy: Why we must keep GST simple and free of food carve-outs

A new report published by the New Zealand Taxpayers’ Union analysing the impacts of taking GST off fresh fruit and vegetables concludes that the policy would be expensive, complicated, poorly targeted and would see most of the benefits going to supermarkets rather than consumers. 

Using a collection of the leading research on GST and VAT systems from around the world, the report concludes:

> Evidence of significant litigation internationally over the categorisation of certain food products demonstrates the significant cost and bureaucratic complexity of determining whether different items should be zero-rated or not.  

> The inherent complexity of a GST system with a zero-rating regime adds significant compliance costs to small and medium sized businesses who currently enjoy the benefits of a system that is simple to calculate and administer. 

> Taking GST off fresh and frozen fruit and vegetables will not see a 100% pass through to consumers and is likely to be substantially less than this. Any pass-through of less than 100% therefore leads to wasted money which would be more effectively spent on other social policy tools such as an increase in Working for Families payments.

> The lack of competition in the New Zealand grocery sector means that consumers are even less likely than their international counterparts to see the GST reduction result in lower prices at the checkout. 

> Removing GST off food items is a poorly targeted way of reducing the cost of living for those most in need with most of the benefit going to those on higher incomes.

> Undermining the GST system for fresh and frozen fruit and vegetables is likely to lead to a slippery slope where lobbyists push for more exemptions to be made to other products such as other basic foods, sanitary products and children’s nappies which would further erode the efficiency and simplicity of the current system. 

In response to the report, Taxpayers’ Union Campaigns Manager, Callum Purves, said:

“A flat-rate GST system with few exemptions is one of the few things economists have been able to almost universally agree on as being good policy. It is a shame that certain politicians and political parties are willing to go against the overwhelming consensus for a policy that supposedly focus groups well.   

“The Finance Minister’s own comments in relation to GST before the policy was announced shows that he knows creating GST exemptions is a bad idea, a sentiment which was also shared in earlier comments from former Revenue Minister David Parker and former Prime Minister Jacinda Ardern. The Labour Party strategy seems to be one of simply hoping that New Zealanders are too silly to see this policy for what it is.

“If the Government wants to bring down grocery prices for struggling New Zealanders, they should focus on removing overseas investment barriers for supermarkets, particularly those relating to the purchase of land, and also cutting the red tape in our resource management system that make it so costly and complex for any major developments to occur.”