Opinion: John Pagani responds to Geoff Simmons' criticism of Labour's plan to remove GST from fresh fruit and veg

Opinion: John Pagani responds to Geoff Simmons' criticism of Labour's plan to remove GST from fresh fruit and veg

Fresh and unprocessed, gst-free orange.

By John Pagani*

Let's examine a few of the arguments Geoff Simmons puts forward in his claim that removing GST from fruit and vegetables is a 'limp response.'

First he says the idea is a way to 'trick' us into eating healthier.

There is high quality, peer-reviewed research that shows taking the GST off fresh fruit and veg gets the average household to buy about half a kilo more each week.

So the 'trick' works. Faced with that research, the real issue for Geoff Simmons is to explain what he thinks we should do with the information. 

Last time I mentioned the research, the main response was to dispute the researchers' findings. Well, ok, but it is the best research there is on the subject - so from a policy point of view what we need to do is answer this question: what would you do if the research is right?

Geoff Simmons puts forward the alternative of food vouchers.

As a solution to what he describes as 'complexity' problems with removing GST from fresh fruit and veg, vouchers are an administrative nightmare. They raise appalling equity issues because they impose extraordinarily high effective marginal tax rates. An arbitrary line has to be drawn over who gets them and who misses out. Or else you give them to everyone, in which case why bother - why not just go the whole hog and take the tax off?

More to the point, the research does not yet show that vouchers work. The idea hasn't been disproved, but the GST-free effect is more soundly based in evidence.

Next, he claims that rich people buy more fruit and veg, so they get more of the benefit. If this point were true, then think of the converse: we could double, triple or even quintuple the GST on fruit and vegetables and that would help poor people out more than anything!

It's nonsense. The trap he has fallen into is to ignore the proportion of fruit and veg spend out of total low incomes. Poor people have to spend a greater proportion of their income on fruit and veg, so reducing some cost is proportionately better for them.

The main claim that is worth considering is that the money could be better spent elsewhere. In the end, this is a question of values, not economics - what is the highest priority is a value judgement. It is valid and reasonable to put a high priority on healthy eating. At the moment we would tax the last morsel in the hands of a starving person. It seems wrong.  (Fortunately, no one is starving). 

And beyond the moral question, when researchers tested a number of different ways to promote healthy eating, this was the most effective one they came up with. There don't seem to be more effective ways to spend the money to achieve the desired outcomes.

The outcome is irritating to tax purists, true. They don't like using tax to promote other policy goals. But why put their policy purity ahead of the policy advice of  professional policy research from other disciplines? If tax policy purists want to show there should be no exceptions to gst, they have to show the benefits of no exemptions outweigh the costs. Many have tried, but none have been convincing.

Next, we have the strange claim that taking GST off fresh and unprocessed fruit and veg runs into boundary issues around frozen and cooked foods, and salad.

This is like asking whether the policy would apply to the sale of penguins. Cooked, frozen, and processed-into-salad fruit and veg are, like penguins, not unprocessed fruit and veg. This is not a murky or difficult line.

See how it works? Processed gets taxed. Not processed, not taxed. 

The claim of complexity irritates me, because it's the first thing everyone says and yet it doesn't survive a moment's reflection.

If you sell an unprocessed orange to a juice maker, there is no GST on that sale, but there will be GST on the juice. Just the same as if someone charges your business a fee for operating a bank account; there's no GST on that business input, but you still charge GST on your output.

The boundary issues around this policy are as bright as any part of the tax code, and the attempt to suggest complexity where there is none is misdirection.

His final suggestion is a higher consumption tax on fatty and sugary food. This idea has merit. Only a few weeks ago Jim Anderton mooted a tax on fizzy drinks to pay for improved dental care.

But it's an extraordinary stance for someone who doesn't like taking GST off, because extra tax on some products is the inverse of less tax on others. Consider the boundary issues: how much fizz would have to be present to qualify as a taxable drink? How much fat? Is an avocado a fatty food?

These issues are easily solved. 

In Australia the tax office supplies the software to firms, and the system operates quite smoothly, despite what people here say. When I investigated the Australian GST exemptions, politicians in a couple of states told me no one is campaigning to put GST on food.

If they can make it work in Australia, I am confident we can make it work here.

====================

*John Pagani is an independent political consultant and writer who has worked as an adviser to Labour Leader Phil Goff. He writes his own blog at Posterous.

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Taking off the GST will not change the price of most vegetables except perhaps the cheapest ones where there is an oversupply.  The supermarkets/suppliers will charge what the consumer is prepared to pay to get rid of the volumes they have to sell eg look at the price of tomatoes at the moment.  Because the price changes from day to day on seasonal items  no one knows what the true price is so it is hard to compare prices between retailers on veges.  The savings to poor people would be way less than the loss of tax income as prices creep back up to their original levels.  Removing GST will only mean the supermarkets will make more profit. 

It would be better to tax non healthy food more so people have to buy the relatively cheaper (healthy) food. 

How about taking GST off ALL food. To recover the loss the top tax rate could be put back to what it was before. Or, my preference is a non tax deductible FTT on all bank deposits

No....not on all food, supermarket raw/unprepared food, yes I can see a good argument on that, make it relatively cheaper against McDonald's and keep it on manufactured food like fanta/coke pre-prepared meals. Top tax rate, oh great raise the top tax rate, funny but that actually hits many ppl who are not that well off.....pork barrel politics again.  PAYE already pay a huge % of the tax burden, yet many of the real rich go for capital gains which is un-taxed. The best thing Ive seen so far that there is no real arguemnt against is CGT and probably a land tax....

FTT, tax no I dont see that as sensible either, but provide some URLs with good discusions on it and I'll read.  

regards

"No....not on all food, supermarket raw/unprepared food, yes I can see a good argument on that, make it relatively cheaper against McDonald's and keep it on manufactured food like fanta/coke pre-prepared meals."

Im sure these people including the moari party read these blogs...Funny how I was prosing such a thing way before they dreamed it up, and more in the format Steven proposes above.

Its the current and  future health bill that worries me.

I made it up Steven. One night when I couldn't sleep I was thinking about the Tobin tax, as one does, and I thought why could't there be a similar tax on all internal deposits. The important thing is for such a tax not to be tax deductible. I thought of a tax of .05 cents in each dollar deposited. Half a cent. The banks could deduct it the way they do with RWT. But I didn't know how much was deposited each day nor did I know how to get such information. But I knew it was a lot.

I like CGT too but it would take such a long time to implement and be effective while the removal of GST on all food needs to be replaced with something immediately

The main problem I believe is free healthcare.  No matter what somebody does to cause their own ill-health i.e. someone gets type 2 diabetes from being overweight, everyone else has to pick up the bill.  If sick overweight people had to pay for thier own healthcare costs, caused by overeating, I think the problem would be quickly solved.  Fiddling about with the perverted tax system will not solve the problem on its own. 

Yet such a tax regime has had a positive effect on smoking rates.

regards

I dont agree, I see nothing to suggest free healthcare is an issue....Causing your own ill-health is probably a minority of the costs...look at American healthcare, lots of obese ppl there who pay for their own insurance policies.....so offhand I see no evidence this is the case.

regards

Actually the government probably can't afford to pay for all of us to live longer.  It may cost a little to treat obese people while they are ill and dying but surely it will cost more to keep us all past retirement if we don't all die young enough. Obese people don't hurt other people like alcohol abusers do so I guess that is why they are not a priority.

"Last time I mentioned the research, the main response was to dispute the researchers' findings. Well, ok, but it is the best research there is on the subject - so from a policy point of view what we need to do is answer this question: what would you do if the research is right?"

or the question geoff... if the best research is useless, why would you heed it? part of the whole point of uni was to train people to differentiate and sift the useful data from the masses of rubbish that is "peer-reviewed" and published... if the main response here is to dispute the research's findings, from a bunch of randoms on a forum, why cling to "the best research"? the best looking roadkill is still roadkill...

Having watched a popular research firm (often quoted in the media) in action i was horrified at the way they manipulated  client interviews/ survey questions to get the answers they had decided were "correct" beforehand. (A bit like BH surveys).  I would take the results of researchers with a large dose of scepticism personally.

"They raise appalling equity issues because they impose extraordinarily high effective marginal tax rates. "

You mean like that other little Labour gem - working for families.

 

Heh heh , good one Kermie .... but then you have a vested interest , I've heard that you're fond of eating hot piggy . 

:-)

I've stopped reading rubbish from Pagani...much healthier!

His music is way way better than his sychophantic Labour rubbish . Listen to Mr Pagani's Caprice # 24 in A minor , Op. 1 ( Tema con variazioni ) ... it's frigging brilliant . He has some talent , but not as a scribe .

At the risk of being labelled a sycophant myself,  when you're right, by jove you're really right Gummy. Pure genius.

 

"If they can make it work in Australia, I am confident we can make it work here."

Has the writer any real world experience with the Australian tax system?

It's an administrative  disaster zone on a grand scale.

Yes I have, I went over and studied it.

No one there is campaigning to get rid of this 'administrative disaster zone' in the way you would expect if it was the disaster you say.

The tax office sends out software to deal with the system. It all runs pretty smoothely, and policy-makers I met were happy with it.

LAJ is right. I presume the idea of taking GST off fresh fruit and vegetables is to make them cheaper and thereby create some sort of health dividend.

The problem is the price of this stuff moves up and down by multiples of 15% on a week by week basis depending on the weather. Noone can make comparisons on vegetable prices so it is hard to see how taking the GST off will reduce retail prices at all.

All it will do is create an admin nightmare and start a slippery slope to complete debasement of the GST system. You can make as good an argument for taking GST off all sorts of things as you can for fruit and veg.

One of the good things old Rog did was create a tax with almost no exemptions.

Well just because you cant see it does not mean it wont happen....

Complete debasement? like not having a CGT?  yeah right.

regards

The problem with this all too common line of thinking is multiple: First, the research disproves your claim it makes no difference. People buy more fruit and veg than they would without the price discount.

But even if you don;t want to deal with the particular research cited, the real policy question - the one that is interesting to analyse, is what would you change in your thinking if the research evidence reached a standard you found conclusive?

(Unless you are saying, after climate change denial, that no amojnt of evidencde will ever be enough.) 

Then, even if you believed it would be an 'administrative nightmare', you still have to show the cost of the 'nightmare' (which I address in the post, but you ignore) outweighs the benefit. And that is an empircal, not theoretical question. 

John, please let this penetrate your consciousness. This is an important matter that has potentially huge cost ramifications for the country. It is not a matter to be toyed with idly by someone who is not skilled in the nuances of this type of research and what it is really saying. I don't have the time to go through all the various points with you. But I will make this one.

The only health benefit in fruits and vegetables is IF THEY ARE CONSUMED! If the fruits and vegetables that are brought are not eaten then there is no health benefit from buying them whatsoever. One of the many flaws of that group of researcher's efforts was that their study did not examine sufficiently whether the extra fruits and vegetables that were purchased were actually eaten or not, and if so how much of it was eaten. And I won’t even begin to get into how much extra fruit and vegetables were actually purchased, but it was so small that I doubt there would be much of a health effect.  

Your question about what would you do if the research is right is irrelevant for this study. It's not even the right question to ask. That work was preliminary and had a number of shortcomings. Those shortcomings need to be addressed in future studies before any firm conclusions can be drawn.

Let me use your approach and language on you. What would you do if the research is wrong?

Although it is associated with the medical profession and medical ethics this well known phrase applies equally to economics and all policy initiatives.

 Primum non nocere,

First do no harm.

Im up for a debate on your so called "climate change denial" how about it John ??

We should differentiate between needs and wants. food. fuel etc.. say 5% appliances,  electronics, and luxury items 15% And housing somewhere in the middle. most other countries can cope with different tiers. I don't see why we can't too. Seems equitable to me 

Why not just use the Australian schedules?

"Most basic food for human consumption is GST free"

"No party is going to remove GST from all food, but Labour has promised to take the GST off fresh fruit and vegetables." - so there it is...no chance...final...forget it ...Thanks for trying though.

Guess we can't afford it.

Searching around a bit. Gordon Campbell (is he viewed as 'extreme' these days?), did a nice little article on this in 2010.

KW - you are missing the point altogether. How could the complexity arguement against a CGT be sustained if we adopted a wider exemption approach with GST? Remember, our policy framework is "highly regarded" and "world best practice", which is one prime reason our West Island neighbour is not so south of us in wealth comparisons.

Yarp Les,

That  'Too Hard Basket'  is getting improbably/implausibly large.

'Advice' is being given within inexplicable/unexplained constraints. Unbelievably small tweaks/concessions are being 'fought over'.  A flea circus, but fleas jump higher.   

 

John Pagani  you state you are an independent political consultant, well, when are you going to write an opinion piece in support of the National party policy or for that matter anything that is critical of Labour policy. You are no more independent than Phil Goff  when it comes to political comment.

We all know that Macadder.....Bernards just doing his bit to help out his mates on the left....Lord knows they need it at the moment.

Anyone small-minded enough to still be thinking in terms of left/right, at this stage, needs to spend some time getting more informed.

There are slightly more important problems breaking around your buggy little eyes, if you opened them.

excito sursum, ranidae est.

You obviously have a pretty high opinion of yourself.....

That's a pretty cheap shot there Kermie......He may not be your politic....but he's perfectly entitled to hold the opinions about our general sense of close mindedness(is that a word) given some of the slagging he and Steven take from us.... just for the hell of it...

In fact I think they both show considerabley more restraint  than most of us do here when the opportunities for the cheap shot  pop up..(myself included)....so cudos for that. 

By the way, He's (PDK) not completely wrong on everything you know...maybe you could start there...?

Thank you Count. "Forgive them, for they know not what they do" occasionally comes to mind, but that doesn't cover the ones who are deliberately disingenuous.

Those ones as criminal as Goebbels was.

Its called returning serve Christov.....I have never had a problem with PDK but then the comment above...well.....

So noted...Have a most excellent weekend Kermit....! stay well.

Off to the islands for a couple of weeks C...miss you already.

Frog out.

... do us a  small favour , Kermie  ....... Walter Kunz is feeling a little out of sorts , moping and muttering  about being unloved and under-appreciated ....

......... give old Kunzie a cheerio , before you hop off ?

Thanks : GBH . .... enjoy the holiday !

Don't know where you got that opinion Macadder I thought he was dyed in the wool as far back as Unions....Alliance....   go here

http://www.imperatorfish.com/2011/04/look-at-polls.html

I believe you're wrong John. But we'll never know for sure. Even if Phil gets his way, how will we know a month after the GST comes off whether or not it's made a difference to the selling prices?

I've expounded here: http://wp.me/P1zZ53-8n

:)