By Ranjana Gupta*
Food prices are rising at the fastest rate in almost four decades, with fruit and vegetables up more than 22% in the past year. As often happens during a cost of living crisis, there have been calls to remove the goods and services tax (GST) from fresh produce.
But is this actually a good idea? And if not, what alternatives might there be to help people currently struggling to afford fruit and vegetables?
Supporters of removing GST argue the move will make healthy food more accessible for struggling families. Removing GST from fresh produce is also meant to help tackle New Zealand’s persistent obesity epidemic – which accounts for 8.2% of total health expenditure (around NZ$135 million) annually.
It is a popular idea. In 2022, 76% of New Zealanders surveyed supported removing GST from food. But as some economists have warned, tinkering with the tax system might not actually deliver the desired results for low-income families. Put simply, those with the income to buy more fruit and vegetables – high-income households – will benefit the most from GST exemptions on fresh produce.
New Zealand currently has one of the most comprehensive and effective goods and services tax systems globally. Any changes would require substantial evidence demonstrating the benefits of change.
Additionally, as many households struggle to cover costs, any additional cash gained from eliminating GST from fresh produce will go towards more pressing expenses like rent and power. If the government wants to fight obesity during a cost-of-living crisis, it needs to develop a more targeted approach.
As food prices continue to rise month after month, it’s getting harder and harder for whānau to put kai on the table. It’s obvious to everyone, the public and the experts - we need to remove GST from kai! https://t.co/cONiCSA7dt pic.twitter.com/pgHAgknvlz
— Te Pāti Māori (@Maori_Party) February 1, 2023
Looking beyond GST
My research, to be published later this year, looks into the literature on GST and tax expenditure from New Zealand, Australia, the United States and United Kingdom. I examined how different countries use a variety of tax measures to help low-income families buy fruit and vegetables.
I wanted to examine whether dropping GST would help reduce obesity by making nutritious food more accessible. In fact, the literature suggests it does not significantly improve affordability and healthy eating choices for such families.
These households tended to allocate additional income (or tax saved) to other food or non-food items, such as meats, clothing or housing.
My study shows there are more targeted options within New Zealand’s welfare system that can be used to help struggling families afford healthier foods.
Targeted assistance overseas
One option is to issue a GST refund on fresh fruit and vegetables purchased.
But there is no guarantee the extra money will be spent on purchasing healthy food. Similar to removing GST before purchase, the extra money will likely be diverted to other more pressing priorities, particularly in low-income households.
If the primary aim of making fresh fruit and vegetables more affordable is to increase healthy eating, then a cash rebate won’t help. But there are policies in use overseas that New Zealand could use as a starting point to directly help low-income families afford fresh produce.
One particularly interesting option is the targeted smart-card system for buying fruit and vegetables. In the US, it’s known as the Supplemental Nutrition Assistance Program scheme (SNAP), and in Britain as the Healthy Start scheme.
SNAP provides monthly funds for people to buy food using a benefit card (similar to a debit card) to buy groceries. They can’t use it to buy non-food items or alcohol. Healthy Start is for pregnant women and mothers with children under four to buy healthy food and milk, also delivered via a type of debit card.
What targeted help could look like
In New Zealand, we already have the food or hardship grants available through Work and Income. But these are only given in exceptional circumstances, and are limited to once every six months.
These food grants can also be used to buy anything an individual or family needs, including toiletries and other non-food items.
Introducing a regular and targeted healthy food grant via an electronic smart card would be a more effective way to ensure low-income families are able to access healthy food.
The cards could be protected with biometric data to prevent abuse or transfer. Eligibility criteria and account limits could be revised annually depending on the inflation rate to avoid any erosion of the card’s value.
Other ways to encourage healthy eating
The literature shows that a targeted smart-card system could help reduce New Zealand’s high obesity rate during the current cost of living crisis, if combined with an increase in education to prioritise healthy eating.
Instead of removing GST, the revenue gathered could be used to provide that extra nutritional information and education.
In 2013, the UK government implemented its “Healthy food for healthy outcomes” policy. Healthy food – and knowledge about nutrition – is treated as a vital element of school life and learning.
My research found that the costs of tampering with New Zealand’s current GST system far outweigh the benefits likely to accrue from such a change. A targeted smart-card scheme is arguably a more effective measure to improve affordability and healthy eating habits – and the benefits would outweigh the setup costs.
*Ranjana Gupta, Senior Lecturer Taxation, Auckland University of Technology. This article is republished from The Conversation under a Creative Commons license. Read the original article.
29 Comments
I have to say this is good news to me. The Card system sounds good - what could be interesting is for the cards to be used at Foodbanks, certified marae, where these institutions could also help in budgeting and cooking. Its one thing to give a person the food, the important one is to use it properly. Getting those new to cooking on the brilliance of spreading food over days - most notably using left overs. I'm a boomer, youngest of 5, brought up by a mother born in the 1920's so saw the depression and WW2, then raising a family on a tradesman wage - though in the good old days of penal rates. They learned a lot of tricks in their time which we have passed down to their grand children.
The same logic applies to getting people to start a garden -its not easy - tools, time and the myriad of obstacles from watering to possums, rats, birds, slugs snails and just plant failure. Its not as easy as 1-2-3, and getting started is not cheap.
Lol - it will be a food subsidy scheme for sure. prices will simply rise as more money is available for the retailers to tap into. most this money will goto the big retailers as that is simply where most people shop from habit and ease.
The way to sort this is to introduce at least 2 more players and break the duopoly. should have been sorted years ago.. this feels like an attempt to avoid that as does reducing GST which (again) would simply lead to higher prices over time. we need competition and price wars.
So half the country gets free food, while the other half gets their taxes raised to pay for the free food. Isnt it bad enough that the State has taken over feeding all the children breakfast and lunch? The more welfare handed out, the more you entrench welfare.
If you removed GST from food, there would be no disincentive for those on welfare to get a job. Everyone benefits. Whereas now those on welfare get free money, free houses, free food, and soon free cars. There is zero incentive to get off welfare. Which is why there has been a 54% increase in the number of people on JobSeeker Work Ready since Labour took over.
Except there is. Welfare is not enough and people resort to thievery and other ways to get income when they are short. Low income earners typically smoke, and drink, which are highly taxed as well. The lottery is aggressively marketed on TV and in low socioeconomic areas. That combined with GST on everything means the poor spend a significantly larger portion of their income on taxes.
Creating a system for a fresh food card sounds ridiculous; it will be yet another system which we don't need to manage something that can be managed in our existing tax system.
Changing the tax system to reduce the amount of tax paid by low income earners and shift it towards the higher income earners is the logical way to reduce the pressure of families in 2023.
It is fairly clear that cutting GST doesn’t benefit consumers - retailers and suppliers take the benefit. There’s good research on this from the UK regarding VAT (the UK equivalent of GST) cuts on ebooks and tampons. Tax lawyer Dan Neidle has a good thread on the issue here: https://twitter.com/DanNeidle/status/1658095533699866625
Or you could do what Australia did and quarantine part of their benefit money on a card that can only be spent in certain stores and on certain things. That way they spend their own money (well, its still taxpayers money but its not extra money) instead of getting more handouts and freebies. It also teaches them responsibility for feeding their own kids instead of assuming the Govt will pay for everything if they just starve them.
I have seen before the calculation that shows the reduced price of a weekly shop by taking off the gst. It makes such a minor diff it make no sense, even worse when you factor in gst compliance costs.
As of vouchers. Well, tell us again how this will increase availability? Price is how we ration products and services. You can't voucher your way out of that.
Smart-card = surveillance State. We will tell you how to eat and monitor you absolutely. What next?
Sorry - free market delivers.
You mean like these guys yeah? https://www.stuff.co.nz/business/131824326/construction-firm-didnt-pay-…
Hey Ranjana - what about reducing the tax on veggie growers - and or giving them cheap electric vehicle / machinery loans? I postulate that profit gouging in transport and higher labor costs and more profit gouging by the SuperMarkets are the issue with Veggie costs going up.
The US "Food Stamp Programme" (in a digitalised form) is a tried & true method to help in the circumstances outlined. The programme administrators outline the goals (eg. 'healthy food'), and then the suppliers of those particular goods & services apply for registration. If approved they can apply a 'seal' to their packaging for use at the point of sale, which is discounted by using a pre-loaded card..... very similar to the multitude of loyalty cards out there. It's not rocket science!
It amazes me how many folks think its a good idea to complicate GST by adding exceptions, I assume folks being surveyed just don't appreciate how messy that would be. I'm all for keeping GST as simple as possible.
That said I'm not sold on the card idea either... this bit in particular, doesn't sound simple and I think a lot of folks won't want the Govt to have their biometric data on file... would be limited to who, criminals and beneficiaries? Yeah I don't think that would fly...
The cards could be protected with biometric data to prevent abuse or transfer.
Let's say we did remove GST from healthy food (and we managed to avoid the inevitable administrative nightmare and arguments over what constitutes healthy) surely supermarkets will just "eat" the difference as extra profit?
The supermarkets know we are already accustomed to paying $X for Y product, so where's the incentive to pass on that immediate saving of 15%? I suspect you'd see an initial drop to keep up appearances, and then a quick climb back to where prices were because we have all proved we are "happy" to buy at that price point, with more margin for the retailers. Higher placings on the NBR Rich List await for the hard-working, enterprising supermarket owners who are the paragons of entrepreneurialism and capitalist innovation.
I'm also opposed to introducing a food card system until actual, meaningful steps have been taken to break up the supermarket duopoly and force competition in the market. All it would do otherwise is presumably raise prices for those not entitled to the assistance card, as you suddenly have more effective $ chasing the same amount of healthy food - also supermarkets will be wise to the fact that the most price-sensitive customers for that category of product are now having their costs met by the taxpayer and so don't need to worry about cost any more, so another opportunity to raise prices presents itself. Those who don't qualify will inherently have more wiggle room to pay higher prices.
Competition would solve that. All those small fresh produce sellers would suddenly be relieved of the obligation to pay GST completely. Which aside from lowering the costs of fruit and veges, would also reduce their business administrative costs a lot. These savings they can pass on to the customer, making them a lot more competitive with the supermarkets.
I always find it wishful thinking that people assume a 15% reduction in fruit and vegetables would all of a sudden change lifetime eating habits.
Price is only one component of behaviours. The test...go to any work function or party where the food is 'free' (so no price component).
First to go is the sausage rolls, bridge pies, pizza, lamingtons etc. Always leftover..the fruit platters and vegetable dips.
People's food choices are very complicated and problematic. A lot of food choices are made for cultural, ethnic, religious, ethical, economic and individual taste reasons.
The science behind the nutrition value of various foods is highly debated. In general the nutritional and beneficial value of fruits and vegetables are highly overrated. There is a belief that eating fruits and vegetables will solve people's health problems. This may come from the fact that many medicines are derived from plants and they are certainly useful in this respect. Plant medicines are essentially toxins developed by evolution to combat predation from fungi and insects and other animals. These toxins can have interesting effects on humans. Aspirin, nicotine, penicillin, cocaine, cyanide and caffeine to name just a few. It has even been conjectured that agriculture developed primarily to produce alcohol rather than food from carbohydrates.
Humans have managed to reduce plant toxins and increase plant sugars through selective breeding. Most primal plants were extremely toxic unless processed carefully. The potato and cassava roots are good examples of this. Most fruits and vegetables we have today didn't even exist as we know them several hundred years ago. The main difference in modern fruits and vegetables is the reduction in toxins and the truly massive increase in sugars. Toxic levels of sugars.
So, I for one, would be opposed to spending precious money on fruits and vegetables. Instead meat, especially ruminant meat, should be government subsidized. Meat has been the primary food of all non slave cultures. The high consumption of carbohydrates makes societies weak, leads to obesity, diabetes, dementia and greatly reduced "healthspans". The British Empire was practically built on a high meat diet. Beef and lamb stews with dumplings made from suet. A key factor for its success.
New Zealand could produce vast quantities of meat for very low cost for all our people. We would see a dramatic reduction in metabolic illnesses and a general improvement in all areas of human health including mental health. Children at school would be better behaved, stronger and more focused if they were raised on a diet that was 90%+ egg, dairy and meat. We would need fewer dentists, doctors, psychologists, nurses, retirement villages and so on.
Yes, much of what we eat now is not very healthy, modern wheat varieties and the manner in which bread is made now using yeast rather than natural fermentation. Hydrolised trans fats rather that using butter or dripping. Everything cooked in unhealthy vegetable oils rather than beef dripping or lard and soya added to everything. NZ is one of the few countries that can enjoy healthy pasture fed meat and dairy.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.