Labour has revealed that cutting GST from fresh and frozen fruit and vegetables will be the centrepiece of the party’s tax policy during Election 2023, as foreshadowed by National’s Nicola Willis.
The opposition deputy leader stole Labour’s thunder by pre-announcing the policy last month, forcing the party to defend the move before it was even made public.
Economists and tax accountants have been highly critical of exempting anything from GST, which is a broad-based tax on almost everything people buy.
However, the policy has proved extremely popular with households which have been faced with a 23% increase in the cost of fresh fruit and vegetables over the past three years.
Labour has “conservatively” estimated cutting GST from these products would shave about $18 a month, or $4.25 each week, off the average monthly spend of about $140.
This was calculated from the latest Stats NZ Household Economic Survey and accounted for the price rises that had occurred since then.
High income households would save the most total dollars, but the savings would make up a greater proportion of low income household budgets.
Last year, a Newshub-Reid Research poll asked if people would support removing the GST from food? Almost 77% supported the idea and less than 19% opposed it.
On Sunday morning, the NZ Herald reported results of a survey conducted by Labour’s pollster, Talbot Mills, which found two thirds of all respondents were in favour of the fresh fruit and vegetables only policy.
Some 80% of swing voters were reportedly in favour of the policy, as well as a slim majority of National Party supporters. It was a representative survey conducted in late July.
This is the conflict at the heart of the GST policy debate: experts hate it, but people love it.
Beetroot boondoggle
Don Brash, a former leader of both the National and Act parties, said in a blog post last month that he was dismayed by the suggestion.
“It will seem such a sensible policy to a great many people, and may therefore attract a lot of votes. As somebody who wants rid of this present Government, that caused some of my dismay”.
However, Brash had a career in economics before getting to electoral politics and chaired the committee which first established the goods and services regime in New Zealand in 1985.
His instruction from the Fourth Labour government was to design a system which minimised compliance costs for small businesses.
The logic was that big businesses would have the resources to manage a complicated system and that would give them a competitive advantage over smaller ones.
Charging the same rate on all goods and services makes the system simple to operate and prevents almost all attempts to evade the tax.
“But as soon as some items, such as fruit and vegetables, are made exempt from the tax, the system becomes vastly more complex,” he warned.
The biggest problem comes in defining a boundary between the types of goods that are or aren’t exempted from the tax. As an example, he asked whether GST be charged on pre-cut salads or a bag of mixed nuts?
No cooking or combining
Labour’s proposed policy would set the GST rate on fresh and frozen fruit and vegetables at 0%, a practice done overseas and known as zero-rating.
Boundaries will be based on whether the fruit or vegetable has been “processed”, meaning cooked or combined with other ingredients.
This rules out anything canned because of the heating process that accompanies canning.
“We have to draw a line somewhere and where we have gone is affordable, practical, and achieves our policy aims. There are boundaries everywhere in the tax system and we’re confident tax officials can make it work,” the party said in a policy document.
However, fresh or frozen fruit and vegetables can be cut up and mixed. This means Don Brash’s pre-cut salad may be exempt, but frozen oven chips would not be since they are mashed and coated in oil.
If a food producer made a bag of oven chips that were just potatoes cut up and frozen, those would be zero-rated.
Labour said there would always be line-calls to be made and a consultative expert group would be established to work through “the finer details”.
Pass on the costs
Terry Baucher, a tax specialist, said policy advisers were “pretty much unanimous” in thinking that a comprehensive GST system shouldn’t be tinkered with.
“When you read the officials’ analysis, they usually suggest it's better to give more targeted reliefs in the form of direct benefits rather than widespread initiatives,” he said.
The second problem comes in ensuring that savings from the tax cut are actually passed through to consumers and not used to fatten the margins of retailers.
Labour’s 2019 Tax Working Group looked at similar exemptions overseas and found consumers rarely received the full benefit.
Whether or not rate cuts were passed through to consumers was largely decided by the level of competition in the market and whether consumer demand was elastic.
Demand for fresh food and vegetables is considered to be relatively inelastic and the grocery industry has been proven to be uncompetitive in New Zealand.
According to the Tax Working Group, this makes the proposed GST tax cut less likely to be fully passed through to consumers.
In March 2020, the government in the United Kingdom scrapped its equivalent tax on ebooks, at a cost to taxpayers of £200 million.
A not-for-profit tax policy organisation found publishers could’ve cut their prices by 17% and made the same margin as before, but they did not do so.
It estimated that publishers and authors absorbed £140m of the £200 million benefit, while Amazon ate up the other £60m.
Labour said the newly established Grocery Commissioner would be tasked with ensuring that supermarkets and other grocery outlets were not profiting from this policy change.
The Commissioner has powers under the Grocery Industry Competition Act 2023 to require information and reports from supermarkets on matters such as their prices and margins.
Zero-rating fresh fruit and vegetables is estimated to cost almost $2 billion dollars over the four year forecast period, or roughly $500 million annually.
It would be met through the annual budget allowance and partly funded by reinstating a tax on commercial property owners.
In March 2020, the Government reintroduced depreciation for non-residential buildings to support commercial property owners through the pandemic.
It has proposed removing this benefit to help fund the costs of the GST policy.
Healthier households
However, there was some academic support for the policy when it was first put forward by the Labour Party ahead of the 2011 election.
Professors Tony Blakely and Cliona Ni Mhuchu from Otago and Auckland universities offered the proposal their “cautious support” as a way to improve health and inequality.
That year, a randomised trial of 1,100 New Zealanders found there was an 11% increase in the purchase of fruit and vegetables when 12.5% was taken off the price.
Which meant approximately six extra servings per household at the time.
Blakely, who is now chairing a royal commission into the covid response, said then it could improve the country’s nutrition but the food industry would have to pass on the savings.
Labour’s policy document put plenty of emphasis on the health benefits of the policy, rather than making it solely about the cost of living.
“Currently New Zealand families are putting off purchasing fruit and vegetables in favour of other products, which may be cheaper but are often more processed and less healthy,” it said.
Since 2013, fruit and vegetables have been declining as a proportion of all expenditure, even while total food expenditure has been relatively flat.
Labour hopes removing GST will make fruit and vegetables a more affordable option and boost consumption.
You can compare the policy positions of all parties here. This is a resource that is updated as each new policy is released.
111 Comments
so who is leaking to the national party, that is the second time some tax policy discussed by the labour party has been leaked to nicola willis, is it disgruntled public servants that want a change of government or a labour member that after the election will be quitting the party and looking to pick up a cushy board job or CEO or advisor job from the next government?
Finance Minister Robertson had quite rightly lambasted the concept as folly. Closely supported by Minister Parker it would appear. This reduction in less than six months or so would be worthless as retailers will steadily reinstall the pre-existing prices. All Hipkins has achieved here is confirmation his caucus and/or cabinet has sprung a sizeable leak. This government is becoming more and more like a pantomime. Now there’s a thought. A ready made cast for Mother Goose, coming to a theatre near you.
Part 2 would help and could be justified by the vege gst removal
You'll find that the ones who consume shit will keep doing so and then the media will do their bidding for higher handouts
If govt is smart they'll use good maori to influence the rest, as we're socially minded. Same with PI
Wage freeze hasn’t achieved jack-all. It forces the few good workers essential to the sector out to private companies.
overall, it might only push up staff turnaround in public service and reduce productivity in the sector further as more bureaucrats move jobs frequently for a pay increase.
So who is leaking to the National party?
Possibly the "leak" came from a Karen O'Leary interview on the Paddy Gower Has Issues TV show when she interviewed Chippy about chips. The interview was on the night before it was publicised that Nicola Willis knew about the policy, may just be a coincidence though. However our household all looked at each other and said GST is coming off fruit and vegetables after watching the interview.
6.06 minutes in on this video for anyone interested - https://www.newshub.co.nz/home/politics/2023/07/paddy-gower-has-issues-…
... but the food industry would have to pass on the savings.
I'll take things that won't happen for $2 billion, Alex.
I look forward to fruit and veges being a bit cheaper for a short period of time, only for the price to creep back up to what we were paying before, only this time Nicola Willis will get to joke about Robertson having an even bigger hole, and my local supermarket owner will get to upgrade his Bentley (again) with the extra profit.
First create a cost of living crisis with dumb ideas, then attempt to solve it with dumber ideas ..... Edit - I was surprised I missed this : Also pay taxpayer money to 'a consultative expert group to work through “the finer details”.
No thank you. I'd rather pay money to my uncle Bob to make me a vege garden and a chicken coop.
What's wrong with giving away two billion in tax revenue to the supermarkets (at a time when we apparently desperately need more tax, not less) for no appreciable gain for the average hard-working Kiwi? You'd almost be forgiven for thinking there were some votes to buy, or something.
At least the Green's policy proposed today, albeit seemingly expensive, would actually yield ongoing benefits for both households and society as a whole rather than lining the pockets of the duopoly for no long-term gain.
You and me both. I think some kind of competitive "KiwiShop" that sells affordable basics would be a good idea - in the same vein we should enforce more competition on the banking sector by allowing you to open a deposit account with the RBNZ (as other more astute commenters have suggested here on numerous occasions).
Kiwishop aside, I would have been more impressed if Mr Bread & Butter issues (or is that Mr Fruit & Veggie issues - Cabbage, more specifically) announced some kind of EBT card-type policy that meant lower income individuals and families could get a certain amount of healthy, basic food each week for either free or at least substantially discounted with no 'cash value'. I doubt I'd benefit from such a policy as I earn a good income, but I'd be happier knowing my tax is at least providing a benefit to the less fortunate in the form of more healthy food for kids, pensioners and the like.
Instead, we have this paradoxical situation where Labour - being on the ropes and needing a Hail Mary, knockout punch - on one hand says we need more tax and couldn't possibly afford to index tax brackets or have a tax-free threshold, but on the other hand is happy to piss away $2 billion in lost GST for what is almost certainly no appreciable benefit apart from further enriching the supermarket duopoly (I guess some accountants, lawyers and highly-paid consultants and advisory group members will do well too).
The state couldn't run a cold bath without Maori being all over it with 3 waters
A state owned grocery chain would be a cluster and drive the big 2 to own all the suppliers!!!
Just remove the protectionism if meat, dairy, fish , and veges and allow cheap imports. ,( Remember the potato farmers killed off those cheap Spanish fries!.…. And Spanish potatoes are much better than NZ expensive rubbish)
No changes to the income tax brackets. So 100% confirming that someone who earns minimum wage will end up hitting 30% through just working a 40 hour week in the next three years.
This is insane. The minimum wage exists to prevent exploitation of workers. But in the very same breath, the government actively clip more and more from their pay while proclaiming how increasing the minimum wage is the right thing to do. This is abhorrent and frankly, morally bankrupt.
It will be 16 years since the tax brackets have been moved to account for inflation if Labour sees this through to 2026. Shameful.
Someone will be in shortly to ramble on about top 5% paying 50% of all income tax, insinuating that those high income earners work infinitely times harder than the bottom 50% and that we should be grateful for all the heavy lifting they do. Ignoring the fact that many of the bottom 50% receive tax rebates as an indirect subsidy to pay the rent.
Many, but not all. No one is living the life of riley on $50K, there's no justiciation for those people to be anywhere near crossing a 30% threshold. It's perverse.
And realistically, that talking point is a natural outcome of a system where we get told people have to pay their 'fair share' while at the same time making our total tax take reliant on an extremely small group of taxpayers, while others pay close to nothing or even less than nothing. And at the same time, we're dishing out rent subsidies and supplements to people because we don't want to deal with the structural issues that make just getting by in NZ so hard without hugely redistributive government support.
Layers upon layers upon layers of lazy and inept short-term governance, while people clamour for a moral highground which simply isn't there anymore.
Sort of. I'm still not sold on how a land tax would result in anything other than a massive outflow of money from Auckland and Wellington into the regions. People earning the same income should generally, as a rule, end up paying the same levels of tax. But if it could be made to work (variable rating for different environments/urban settings?) then we might get somewhere with it. I've come around on it in principle, it's the least-worst option of all the alternatives.
What I want to know is if the local souvlaki place can suddenly decide that it's selling a fresh salad of shredded lettuce, tomato, red onion and cucumber that just so happens to come with a free side of bread, meat, sauce and a hearty portion of cripsy golden chunky chips - and pass on to yours truly a nice 15% discount. I mean what are the odds of getting caught?
If so, I might be tempted to vote for this brain fart of a policy if it makes my Sunday night takeaway cheaper (ok I won't, but I can definitely see some no-GST-exemption fishy stuff going down with businesses trying to find loopholes in this policy).
The UK has no GST (VAT) on most food or on books. There have been some arguments about whether a Jaffa cake is a cake (not taxed) or a chocolate covered luxury biscuit (taxed) or at what temperature a hot pie (taxed) becomes a cold pie (not taxed). But apart from a few exceptions it has been fairly straight forward.
https://mooreandsmalley.co.uk/insights/knowledge-post/why-is-vat-payabl…
https://en.m.wikipedia.org/wiki/Pasty_tax
In 2012 ""U.K. plans to include fresh roasted chickens sold in supermarkets among hot takeaway foods subject to value-added tax will cost farmers and shoppers millions of pounds, the British Poultry Council said"" Not sure if that was implemented but they did have issues with whole chicken and chicken pieces with the latter being considered as 'prepared food'.
It is a bag of worms. Our big supermarkets will be honest but the small traders will record most chicken sold as cold, uncut chicken.
It sounds like a slippery slope. If the argument for "zero-rating" fresh fruit and vegetables is essentially some mix of cost-of-living and public health, the argument for taking GST off lots of other things builds steam. Children need books to learn, and clothes to wear — let's take off GST. People need a form and means of transport, let's take GST off petrol. People need the internet, phones and electricity, etc.
Better to either jkust reduce the rate of GST across the board (could go back to 12.5%) or do what National proposes and cut income taxes, or (shock horror) cut income tax thresholds back to their inflation-adjusted thresholds from when they were last set. All of these are a lot simpler and will still benefit poor people.
You can adjust the thresholds so high earners are no worse off and the lower income earners get more. That would be a far better way to help people on lower incomes. Labour said the rich don’t need a tax cut but offered one to them which is incredibly expensive to administer
So they're going for the removal of GST from Fruit and Veg, but no mention of a tax free lower income bracket like they have in Aus.
Yay, $4.25 per week (should have just said 4.20 because they're smoking something) yet axing the lower tax bracket would a) be simpler to implement and b) will give everyone $28.27 per week.
Even just indexing the lower tax brackets as an interim measure, would go some way to alleviating the the stupidity of someone on minimum wage hitting a 30% bracket.
What incentive do people have to work harder, upskill or take on more work when the government is going to take 30% of everything extra you make, with no justification other than apparent intent to rule by some sort of Divine Right?
And we wonder why our productivity is ass.
Depends if what you're allowed to keep of your earnings makes it worth doing the extra work.
Would I work longer hours in NZ on a lower wage to lose almost a third of it, or would it be better for my quality of life to move somewhere with higher wages, lower living costs and where I get to keep more of my money?
Not at the expense of those on higher incomes. The government has to get better value for money. How much has been spent on projects that aren’t going ahead. How much money has been spent on the tax working group (which said gst exemptions are a bad idea). Nothing seems to be better for the extra being spent.
They also propose huge increases to Working for Families. Cost free of course, as is all money distributed by the Government.
Why not take it to the proper conclusion. Put everybody on a huge income benefit. We, all of us, would be rich, and never have to work again. Magic.
If you mean a really generous universal child benefit replacing most of the 'targetted benefits' then I'll agree. Make Kiwi families rich and let those beneficiaries without children move when they search for jobs, move to cheaper accommodation, etc. It would remove most of our WINZ admin costs and be difficult to rort. Even Green MPs will admit who the father of their children is.
The they already did. Frozen vegetables are often partially cooked (blanched) before freezing but that isn’t deemed processed. Cutting is ok, mixing is sometimes ok and cooking isn’t ok unless it is partially cooking so you can freeze it (maybe freezing offsets the cooking). Maybe frozen canned tomatoes would be except?
I wouldn’t worry through as the rules will be clear before implementation and it will be easy to comply with.
The Uninformed Election That Has Become a Gateway to Chaos
https://hatchardreport.com/the-uninformed-election-that-has-become-a-ga…
Just like the other article about the Green Party Energy Policy, they don't realise there is NO money! Tax take is well behind the forecasts and with the looming economical downturn coming, driven by much lower export revenues (Whatever MPI says has been denied by the people involved in our export industries!!), it is only to get worse. Our current account deficit will grow even further and overseas bond market investors will demand an ever increasing premium to fund our short falls aka higher interest rates for longer. New Zealand needs to bite the bullet and find unpopular sources of tax like a stamp duty or a wealth tax.
By the way the same applies for Nats and ACT if they propose taxcuts. They all seem to have forgotten the Truss mini budget disaster. So first fix the deficit and then propose these type of policies.
I think they're all banking on Chynese capital flight heading this way. But look at this:
Shanghai police have detained the founder and CEO of the city's largest immigration consultancy firm, prompting warnings to Chinese people to leave immediately or not return amid fears the authorities will crack down on an ongoing wave of mass emigration.
The Shanghai police force’s economic investigations department said via the Weibo social media platform that it had detained a 54-year-old woman surnamed He and a 39-year-old woman surnamed Sun who was her employee at the Wailian Chuguo consultancy firm that helps people emigrate overseas.
Commentators said the move is a warning that the ruling Chinese Communist Party is acting on its concerns over the sheer number of its citizens wanting to live elsewhere, dubbed the "run" movement.
https://www.rfa.org/english/news/china/immigration-arrest-0811202310384…
Not exactly a boat rocker is it?
Hipkins tried to make National look irresponsible to middle income voters who are also swing voters.
But gives them nothing and jam tomorrow for bottom third. V redistributionist. Tinkering welfarism as usual. Tepid boring and inadequate
A friend of mine was involved in designing GST back in the 80s. One of the things they learned from the UK was how to fuck up an indirect tax like this by making it complicated. I guess we had a good 40 year run. A vote buying fiddle like this was inevitable as our standard of living slowly declines and a bottomless pit of need forms under the politicians.
It's not just a silly move because it complicates the system. It's also a step back to a heavier reliance on direct rather than indirect tax - so relatively more reliance on taxing productive effort and less on consumption. Really great effort, not.
That’s the issue, it will add to the real cost of selling groceries. Great for IT people, accountants and lawyers and consultants. I’ve spent a lot of time on regulatory and compliance projects and have seen the cost of them on businesses and as a result, consumers. Some of them have a tangible benefit but others are marginal.
I don’t see how adding cost to business is helping with the prices at the supermarket. There are much more effective ways to give money to people like lowering the tax rate on the bottom threshold. Lowering the bottom tax rate to 8% would give anyone earning $14k or more $350 a year extra. The equivalent of buying $2333 worth of gst exempt fruit and vegetables, with the added benefit of being able to buy whatever they wanted, like canned fruit and vegetables and things like rice etc. You could also lower the top rate to $175k to stop high income earners getting it. Nobody could complain they are worse off
As a now retired IT consultant, I can already hear the sound of the industry rubbing their hands with glee, along with lawyers, accountants, food classification experts and the like. Establishing boundaries over what is or is not a taxable final item, is publicly simple, and privately devilishly complex. Three scenarios for common taters (unprocessed, therefore zero rated) to chew over:
- A grower grows tomatoes, potatoes and canola. Some of the first two are processed, some are sold raw. What can the grower claim by way of input GST?
- A hot potato stall sells me a raw potato (zero rated) for $5 and offers to heat and stuff it for 50c as a taxable service fee. Is this legal?
- A packaging plant combines raw salad ingredients with roasted nuts, dried apricots and raisins but with the processed ingredients in a separate inner package within the outer retail wrapping. Is this SKU zero rated?
The grower can claim only the gst that they paid which will be most things. They will charge gst only on the tomatoes and the potatoes. What they pay/receive from IRD will be the difference between gst received less what is paid. The second example is the interesting one. Is freshly squeezed orange juice exempt if they charge you for the oranges and then a seperate fee for the bottle and bottling?
This is a very desperate ploy to get more votes. Saving a few cents on foods that are practically devoid of nutrition shouldn't sway any intelligent person and certainly wont sway those that mostly eat processed foods.
Why doesn't meat, eggs and dairy, the most nutrient dense and valuable minimally processed food, have GST removed?
Great news. Next we can demand the removal of GST on tampons. Because that's how this all starts.
Maybe instead of tax tweaks, we could use investment to improve our nationwide ability to produce and sell fruits and vegetables better and cheaper.
Admittedly it takes confidence to believe a government could invest efficiently in anything new, but money spent on the research and networks behind growing and distributing good produce could absolutely pay off. I would also personally be more convinced that the government is acting on the cost of living crisis and health crisis we seem to be facing.
That’s what we need, things that actually address the problems rather than things that appear to help, but make the problem worse. This change is inflationary and is going to increase demand for IT and accounting services. This will add costs and divert resources from other more productive work which could help lower costs.
Lowering the bottom rate of tax on the first $14k of income to 8% from 10.5% would have the same benefit to people and they would be free to buy tinned tomatoes or fresh and wouldn’t be taxed for choosing the cheaper option. The rich people wouldn’t get a bigger cut when they push the boat out and buy kumara @ $11.29/kg instead of the $13/kg now.
Are waxed citrus fruit exempt from GST? Is the whole policy an early April fools joke? The fact that the PM couldn’t tell if basil was exempt or not indicates that there is a lot of compliance work to do to assess what is exempt and what isn’t and don’t forget businesses will need to assess all of their products to check the status and configure their systems to manage it. That is a lot of work to do between October and 1st April with Christmas in the middle. Starting now for something that might not be law could be a waste of money and the rules aren’t even clear yet. All in all it goes against their own advice and is going to create work for accountants, IT people and consultants and will be inflationary as the cost of selling increased. Instead of paying gst on fruit and vegetables we will effectively pay an admin fee.
Is it really that complicated . anyone who imports/exports has been zero rating right from the beginning.
And do they really need to be that precise over what is a vegetable or fruit , and what is partly processed etc. I doubt its worth IRD's time to start nitpicking between a raw fruit , and a waxed fruit for e.g.Nor is it worth a retailers time to argue the other way.
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