GST claims cabbage: If Labour’s claims are right, there’s a $411m hole in the costings

The Taxpayers’ Union can reveal that it appears the Labour Party has failed to account for behavioural change in its flagship election GST policy. Despite the policy document stating that it “will have the additional benefit of encouraging Kiwis to purchase more healthy fruit and vegetables in their weekly shop”, the Party does not seem to have factored this into its costings.
 
By using data from the 2019 Household Economic Survey and excluding canned dried fruit and vegetables, we can estimate that the share of current GST revenue that is levied on fruit and vegetables is 1.55%. Applying this to the BEFU GST revenue figures, allows us to almost perfectly match the figures in Labour’s costings:

 
Note that in the HES, fruit and vegetables are combined into canned, bottled and frozen. The above calculations assume that half of this category is frozen.
 
When a good becomes cheaper relative to another similar good, there is a substitution effect where consumers shift towards consuming the cheaper alternative. By removing GST from non-processed fruit and vegetables, it is likely that there will be some shift towards these products from processed alternatives. The shift away from processed fruit and vegetables will mean less GST is raised on these products and this should be taken into account in any costings.
 
Applying figures from a modelling study on effect of food taxes and subsidies on population health and health costs in New Zealand from 2019 by Blakley et al. would suggest a percentage change of around 17% and a resultant gap in the costings of $411 million if the GST reduction is passed on in full as suggested by some Labour candidates’ election advertisements. Even if only 30 per cent of the GST reduction is passed on as the Tax Working Group’s report on the issue suggests, there would still be a $123 million gap in Labour’s costings.
 
Taxpayers’ Union Executive Director, Jordan Williams, said:
 
“Labour’s policy of removing GST from non-processed fruit and vegetables has already been lambasted by economists and people across the political spectrum, but it seems that their proposals were even less well thought through than it first seemed. Despite boasting that the policy will encourage Kiwis to shift their eating habits towards more non-processed fruit and vegetables, even Labour’s own modelling leaves it out for the purpose of the costings.
 
“Labour is effectively saying its plan to destroy the best GST system in the world will not result in Kiwis eating one more carrot.”
 
“Either Labour’s got a big hole in its costings, or they know their key sales pitch is fresh baloney.”
 
“If some of their candidates’ rather unrealistic claim that supermarkets will pass on GST reduction in full, our estimates suggest that Labour would have a hole in their budget of over $400 million. Even using the Tax Working Group’s more conservative pass through estimates, we still see a gap of over $120 million that remains unaccounted for. Voters are already seeing through this cynical policy and this latest blunder would suggest that even its main champions haven’t even properly thought it through.
 
“Misleading costings like these show why an independent costings unit to audit the spending promises that political parties put forward is a no brainer.”