IRD and Treasury advice suggests supermarkets main beneficiaries from Labour’s GST policy

The Taxpayers’ Union can reveal that as part of the Tax Working Group appointed by Grant Robertson, and chaired by the late Michael Cullen, Treasury and IRD conducted analysis on what percentage of exempting GST from certain goods would actually be passed on to consumers.

The expert advice paper, concluded that while cuts to GST/VAT rates are passed on, exemption or multi-rate policies see just 30% of the tax relief passed on to shoppers.

The paper looked at the best available evidence and concluded: 

This research estimated that changes in the general VAT rate were on average fully passed through to consumers. However, changes in rates for specific goods and services were on average not fully passed through and had an estimated average pass through rate of approximately 30 percent.

Taxpayers’ Union Executive Director Jordan Williams said:

“A pass through rate of 30% to consumers means that 70% of Labour’s GST carve-out would be captured by the supermarkets. Labour costed the policy at $2.2 billion over the four-year forecast period, so supermarkets in effect get a tax cut of $1.54 billion while consumers enjoy just a fraction.

“This isn’t just a hole, it’s a weevil in Labour’s fruit and vege policy. Supermarkets already enjoy super profits thanks to regulatory taxes like the RMA that prop up their duopoly and put off newcomer competition. They are the last group that Labour should be supporting.

“Here at the Taxpayers’ Union we want tax cuts more than any other group. But we shouldn’t sacrifice what is the best GST or VAT system world over in terms of compliance costs and complexity. We favour income tax relief and other measures that cut out the middle man, and let kiwi workers keep more money in their pockets.

“This will be one of the many reasons Grant Robertson does not like this policy. Deep down Chris Hipkins will also know the policy is shoddy. He should put good policy over good focus group feedback and abandon the folly in favour of policies that will really help those struggling to afford the groceries.”