Let them eat pomegranates

It would be tempting to enjoy watching Labour explain the logic of taking 15% off the price of pomegranates while leaving it on frozen peas.

It could be fun listening to the party try to explain how a 15% reduction in the price of out-of-season asparagus will help the poor without giving a bigger benefit to the rich.

It might be amusing it to see them attempt to justify removing GST from pineapple and pawpaw but not from milk or meat, bread or fish.

And I could laugh laugh when people start asking what’s the benefit of a policy which increases compliance costs, sabotages the simplicity of our GST system and does nothing at all to address the real problems facing individuals and the economy.

Except this is serious. Reducing GST on fresh fruit of vegetables is a shameless con and shows labour has no grand economic plan.

Good tax is an oxymoron but simple taxes are better and our GST has been simple from the start. Phil Goff knows this because he was one of those who helped the 1984-87 Labour government develop it and sell it.

The arguments for keeping it simple which made sense then still make sense today.

It’s not just that tinkering by making minor exemptions increases costs which are not matched by significant savings. It’s that as Kiwiblog points out, it’s the start of a slippery slope.

If GST comes off raw peas, why not frozen peas which may be more nutirious? If it comes off some food, why not health and education goods and services? Once you start, where do you stop?

This is a high cost low value excuse for policy which, as Bill English explains, won’t help anyone much and help the poor least:

Labour’s unfunded policy to remove GST from fresh fruit and vegetables would deliver only $1 a week for the average Kiwi – and much less for low income earners, Finance Minister Bill English says.

 The estimated $250 million cost of the new policy would have to be paid for by extra borrowing, pushing up already fast-rising public debt.

 “However it’s good to see Labour confirming they would leave GST at 15 per cent on all other goods and services – they now realise that the vast majority of Kiwis will be better off from the Government’s income tax-GST switch,” Mr English says.

 “But their politically desperate move to remove GST from fresh fruit and vegetables would needlessly complicate the tax system, increase compliance costs and create all sorts of perverse anomalies.

 The $250 million annual cost of the move, divided among all New Zealanders, is worth, on average, just over $1 a week – less for low income earners and more for high income earners.

 “This puts the Government’s tax switch, which will leave the average income earner $15 a week better off, into perspective,” Mr English says. “It’s also worth noting that fruit and vegetable prices have actually fallen by 11 per cent since National took office, having jumped 54 per cent under Labour.”

 The Tax Working Group last year concluded that removing GST from food would make almost no difference to the distribution of tax across income levels, but would lose 20 per cent of GST revenue. This would have to be made up by increasing other taxes.

 “Labour’s policy makes no sense and smacks of political desperation,” Mr English says. “Phil Goff must explain to New Zealanders why he is removing GST from imported, out-of-season raspberries and asparagus, but not from New Zealand frozen peas, which are a nutritious part of many Kiwi meals.

 “People would be able to buy GST-free potatoes, take them home and make deep-fried chips. But at the same time, healthy foods like Weetbix, low-fat milk and wholegrain bread would be subject to GST.

 “Setting those boundaries will introduce considerable administrative and compliance costs for Government and retailers, legal uncertainty, and opportunities to game the system.

 “The experience from other countries with these sorts of policies is of protracted legal disputes and hundreds of pages of rules to determine where exactly the boundaries lie.

 “Labour needs to answer these kinds of questions – and explain how it would pay for this muddled policy,” Mr English says.

 The party might also want to explain how complicating the tax system will lead to the economic growth which is what will benefit all New Zealanders most.

18 Responses to Let them eat pomegranates

  1. poneke says:

    Actually it won’t reduce fruit and vegetable prices one bit.

    Fresh produce goes up and down in price every day based on market values.

    Shops always sell them for $2.99 a kilo and so on. They will continue to do this, and reap the benefit of a GST reduction for themselves, not pass it on to consumers. It would be impossible to police such a matter, given the daily fluctuations of market prices.

    In Australia, some items of fresh meats, vegetables etc are GST-exempt. They cost much more than the equivalent products in New Zealand. Consumers would not know what is GST-exempt or GST-added because the shelf prices only quote the total price anyway, as in New Zealand.

    As Labour will not win the next election anyway, it’s really all a bit academic.

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  2. robertguyton says:

    If enough people believe that it’s an idea that has their wellbeing in mind, Labour will win huge support.
    And National seem miserly and dismissive in rejecting it, as you do here, rightly or wrongly.
    Calling for GST to be removed from fresh fruit and veges is a great strategy (I think you know that!).

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  3. Sally says:

    If it is such a great idea, why didn’t labour implement this when they were in power for 9 years?

    Exempting the likes of frozen peas shows how uniformed these silly people are.

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  4. robertguyton says:

    ‘Uninformed’ and ‘silly’.
    Powerful and deep observations there Sally.
    I’m confident that you have seen right through them.

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  5. homepaddock says:

    “If enough people believe that it’s an idea that has their wellbeing in mind, Labour will win huge support.”

    Most people don’t vote for ideas. They do vote for policies which will give them more money – this one won’t.

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  6. gravedodger says:

    Don’t the duplicitous b******s realise that just as the rich will benefit more in real terms from the tax cuts so they will benefit more from this insanity as the have more expensive tastes and possibly a higher wastage factor therefor a higher exposure to GST and didn’t Mr Goff say the tax cuts were unfair!!!
    Geez what muppets they are, or is that grossly unfair to the Muppets.
    Oh and poneke is dead right the retail market is so volatile and subject to marketing, weather and supply factors any change will be minimal or nonexistant.
    The neanderthals wont let sanity get in the way of this brilliant grab for votes they have already captured RG

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  7. robertguyton says:

    A reduction in the price of fruit and vegetables will result in an increase in their uptake.
    Healthy New Zealanders, benefiting from a good policy.
    As for the argument that F&V won’t reduce in price, MR ENGLISH swore that there would be NO gouging when his INCREASE in GST came in (and I know you trust Bill).

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  8. Paul says:

    Hutchison: The peas within the omelette are fresh?
    Basil: Oh yes, they’re fresh all right.
    Hutchison: They’re not frozen?
    Basil: Well they’re frozen, yes.
    Hutchison: If they’re frozen, they’re not fresh, are they?
    Basil: I can assure you they were perfectly fresh when they were frozen…

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  9. poneke says:

    A reduction in the price of fruit and vegetables will result in an increase in their uptake.

    Abolishing GST on fresh fruit and vegetables will not lead to a reduction in price of these items.

    Just as the increase in GST from Friday will not cause their price to increase.

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  10. robertguyton says:

    But poneke, you are doubting the word of MR ENGLISH (his word is sacred around here!).

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  11. homepaddock says:

    Robert, it’s Phil Goff who reckons GST will make a difference, his name definitely isn’t sacred around here!

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  12. Sally says:

    RobertGuyron
    “If it is such a great idea, why didn’t labour implement this when they were in power for 9 years?”

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  13. robertguyton says:

    Homepaddock – it’s Bill English who says prices won’t go beyond their GST markup, that is there will be no gouging.
    If there was no GST on fruit and veges, you could hardly claim, as poneke does, that they would still rise along with everything else, because Bill the Annointed One said it won’t happen (and we accept Bill’s word on every matter here, remember).

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  14. robertguyton says:

    Sarry – beats me, I’m a Green supporter.

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  15. homepaddock says:

    Robert, as I read it Poneke is also saying that GST won’t impact on prices, the only one who thinks it will make much difference is Goff and he’s wrong.

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  16. robertguyton says:

    Bill said The Market will prevent any price rises outside of those brought about by the GST increases.
    What do you think?
    Fruit and veges will/won’t go up to 15% GST.
    If they were exempt from GST would they be cheaper?
    Surely, according to Bill, they must?

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  17. homepaddock says:

    He said and I agree prices go up and down all the time: “fruit and vegetable prices have actually fallen by 11 per cent since National took office, having jumped 54 per cent under Labour”.

    The recent bad weather is likely to reduce production which could push up prices of domestic fruit and vegetables, but if the weather warms up they might go down.

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  18. poneke says:

    I am certainly not endorsing anything Bill English is claiming about GST not causing a price rise. I have studied this issue independently since GST began here at 10pc in 1986.

    A small rise in GST such as from the original 10pc to 12.5pc, and now to 15pc, is simply absorbed by retailers on such goods as fresh fruit and vegetables (and most other such retail goods).

    It is the market that determines the retail price at such a level. NZ retailers like everything to end in .99c and they will not increase prices to end in an extra dollar and 8c or whatever in response to this small GST rise.

    As I said, in Australia, some foods are GST-exempt but they are still priced at market prices — and cost much more than the same foods in NZ, something I attribute to the widespread protectionism in Australia, which we Kiwis fortunately have not suffered for a couple of decades now.

    It’s not for me a matter of who the political party is — I am apolitical. I deal in facts. This GST rise will have little price effect on basic foodstuffs, and the evidence from Australia shows that exemtping some food from GST does not reduce prices.

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