By Alex Tarrant
I remember before a Sky News 2011 Election interview, our panel of journalists coming up with a cracker way to tackle Phil Goff on Labour’s policy of taking GST off fresh fruit and vegetables.
We sent one of the team down to the local shops to buy an unpackaged cabbage, some lettuce in a bag and a McDonalds salad in a plastic container. Then during the interview Barry Soper whipped them all out and asked Goff which would be GST exempt.
Would the packaged ones attract the tax because they had been processed? If the McDonalds one had been spread with mayo then would the salad be exempt but the mayo not? It was the most fun I’ve ever had in a TV studio, where you’re usually spending most of your time nervous about getting a number wrong or swearing on live TV.
It is generally regarded within the tax and economics community that exempting certain goods and services from GST will start a government off on a road arguing over further exemptions and lead to challenges over whether something does or doesn’t fall under an exemption banner (such as in Australia with ciabatta). It’s a road to eroding a tax base which is easy to collect and easily understood.
Thankfully in New Zealand we’ve been largely able to steer clear from such a debate at subsequent elections – at least from the two major parties – with Labour finally seeing sense. It didn’t look to be an election issue in 2017.
That was until Winston Peters was interviewed on RNZ’s Morning Report Thursday, which included a what some might call a comical segment on New Zealand First’s ‘GST off food’ policy.
Before we go further – I’ve got a speech from Peters in my inbox from August 18 this year, where he talks about a policy of GST off basic food, which would likely cost $600 million to $700 million a year. I have one from 2015 when Barbara Stewart talks about GST off healthy food, and another from Richard Prosser in 2015 where he talks about GST off basic food items. In 2014 a series of party speeches only discuss taking GST off food.
Until this morning, NZ First had slated on its website a policy to take GST off food, at the cost of $3 billion. After a short session arguing over the details with Guyon Espiner, we know for certain now that it is a policy of GST off basic food items, which should only cost $600 million to $700 million a year – the website has been updated.
Espiner was quizzing Peters on his call for full disclosure from Labour on their tax policy. Let’s talk about NZ First’s own policies, the host said, raising the GST debate. It had followed an exchange over how much Peters’ general policy platform might cost - $10 billion over seven or eight years, if you’re wondering.
“You want to take GST off food,” Espiner put to Peters. “No, off basic food,” the response came. “There’s a huge difference, you see,” he continued. “Off food, you get a huge bill. Off basic food you’re talking something in the zone of about $600 million to $700 million.”
The policy on the website regarding $3 billion for GST off food, should have been corrected a few days ago by a staffer, Peters said – he even admitted it was a mistake.
Espiner: “This is laughable isn’t it? You’re asking for full disclosure from Labour and criticising them, and you can’t even get your own numbers right.” Peters: “Well I’m giving you full disclosure right now. Parties make mistakes, and in this case, it’s been corrected.”
Then the inevitable exchange over what might be exempt and what won’t be. Espiner put a quote to Peters – from him – that the policy would ensure “most of the food” in an average family’s supermarket trolley would be exempt from GST.
“Basic food, yes,” Peters said. “If you have difficulty understanding it, ask your grandmother. Because usually your grandmother would know what basic means.”
A packet of chips or biscuits?
“Chips, no. Chips are not basic food.” Biscuits? “No, biscuits aren’t basic food.” Bread? “Yes, it is.”
So who decides what’s basic and what isn’t? We ask our grandmothers?
“It’ll be listed by people who are your everyday, ordinary people who understand common English. They know it’s not luxuries, they know it’s not this. It is essentials and it’s basics,” Peters said.
Who draws up the list?
“I’d get a team together of people who are practical everyday New Zealanders. Men and women and we’d come up with a list of what basic means.” Peters said he’d “got a couple of economists on to it” in terms of coming up with the $600 million to $700 million price tag about three-and-a-half years ago.
“I can’t understand how that mistake is there,” he said of the website.
Onto company tax – New Zealand First want to reduce this from 28% to 25%. Asked how much this might cost each year from a reduced tax take, Peters moved into attack mode. “I was the former Treasurer, I’ve got a good idea of what I’m talking about,” he began. “It’s not so much a cost; I think it’ll be an actual earner. The moment you do that, there’ll be far better injection into New Zealand business, more interest in investing in New Zealand business, and it will turn around pretty quickly.”
While there would be a short-term cost, “If you go there from where the government is presently talking about tax reductions in private income, there’ll not be a huge cost, possibly $2.5 billion [a year].”
Then onto the policy that exporters would only attract a company tax rate of 20%. Growing export business would mean businesses started to add value here, pushing New Zealand to become like Norway, Singapore and Ireland, Peters said. “You don’t have a loser economy like you’ve got now,” he said. “Your ideas that you’re defending now, have been tried for 33 years and we are sliding down the OECD.”
Back to the initial cost of reducing exporters’ tax rates to 20%: “Well we’ll never know that until we know,” Peters said. “You do not know until you know the level of the take up.”
To New Zealand First’s policy to bring the power companies partially privatised by National into public ownership (“At the appropriate time,” Peters jumped in) …and put them back into a single generating entity.
How much would that cost? “Well you won’t know that because it’s, at the appropriate time.” Onto New Zealand Railways – it was trading at $9.34, and fell to 28c. “That was the appropriate time for the Labour Party to buy it back.”
“If you know anything about the market, you know you pick the best and optimum time to make your move. And that’s in my policy.”
It was put to Peters that the policy states the shares would be bought back at no greater price than that paid by the first purchaser. “Well that’s axiomatic, isn’t it,” he chuckled. “It cannot hardly be an appropriately smart deal if you’re buying higher than they were sold [for] in the first place.”
When could this happen? “If the appropriate time is in your second or third term, that’s the appropriate time.”