The case against meddling with GST


The steep increase in the price of food has led to inevitable calls to exempt at least some foods from GST.

Good tax is oxymoronic but simple taxes are better taxes and GST is simple.

Australia’s isn’t and here’s a good argument for not following them by complicating ours:

More common than sense


Winston Peters accused the Conservative Party of plagiarising New Zealand First’s policies.

Common policies isn’t plagiarism but copying a slogan could be and that’s what NZ First has done by adopting it’s common sense as its rallying cry for the election.

Since 2002 when Peter Dunne got the television worm to dance by insisting his policies were common sense, that’s been associated with him and United Future.

Common sense is an appealing slogan but New Zealand First backs it up with policies which have a greater claim to common than sense.

One of these is removing GST from basic food items.

The thought of wiping $15 off every $100 spent on groceries is attractive but it’s not that simple.

Not all of the grocery bill is spent on food and the part that is isn’t all spent on basic items – whatever they are and that’s where the problems, and costs arise.

Exactly what is basic and what isn’t requires definition, that’s open to debate and it all adds complexity and cost to our enviably simple and relatively cheap to administer GST system.

Labour tried to sell removing GST from fresh fruit and vegetables at the last election but gained little if any traction. One of the reasons for that was that the biggest gains from that would go to the wealthy who’d save on luxury items.

But the bigger problem with this policy is the cost.

. . . Mr Peters said his policy would save New Zealanders but cost the Crown a whopping $3 billion a year or thereabouts.

“This bold policy aims at the heart of the inequality undermining our society.”

Also “as part of a fair system” NZ First would remove GST from rates on residential property.

“This tax-on-a-tax deceit has to end, and it will,” Mr Peters told around 150 party faithful at Alexandra Park.

He did not provide details on how much that policy would cost, but with local authorities raising more than $7 billion a year in rates, the Crown would lose hundreds of millions of dollars in revenue.

However, in an echo of Labour’s plan to fund its big-ticket items, Mr Peters said the policies would be funded through “a clampdown on tax evasion and the black economy” which he estimated was worth $7 billion a year. . . .

Inland Revenue already devotes a lot of time and money to detecting and clawing back money lost through evasion and the black economy.

Greater effort would result in greater costs and would be very unlikely to result in a fraction of the billions of dollars that would be lost from the tax take if these policies were adopted.

Labour to stick with tax and spend prescription


Labour leader David Cunliffe has ditched the party policy to remove GST from fresh fruit and vegetables and exempt the first $5,000 of income from tax.

The GST proposal was never going to have a significant influence on the price of fresh produce and it would have complicated what is an enviably simple tax.

Cunliffe’s predecessor David Shearer had made this decision when he was leader.

Exempting the first $5000 of income from tax would have reduced churn for poorer people who get it back through programmes like Working for Families but it would also have helped the rich as well as the poor which would be anathema to Labour.

The one redeeming feature of both policies was that they were reducing taxes which would have been a pleasant change for that party.

The reason for the policy change shows Labour hasn’t changed:

The Labour Party is ditching two of its flagship tax initiatives from the last election, giving itself an extra $1.5 billion for alternative policy promises.

That’s our money and shows Labour is sticking to its old focus on tax and spend policies.

“Failed policies” struck from Labour lexicon


The Labour Party has directed its MPs and members to stop referring to the failed policies of the 80s and 90s.

The lack of negative publicity the party attracted from its decision to ditch its 2011 election policy to remove GST from fresh fruit and vegetables has emboldened Labour strategists who are charting a new direction.

“I might have a propensity for overlooking bank accounts, but I can not lead a party which refuses to take pride in its past achievements,” Labour leader David Shearer said.

“I wasn’t in parliament at that time nor during the 1999-2008 when “failed policies’ became part of the Labour lexicon.

“It was stupid then and it’s even more stupid now when it’s obvious that the hard decisions taken were the right ones even though the first ones came from the left.

“Those decisions pulled the country up by its bootstraps so it could stand tall on its own two feet, and the four feet of the cows and sheep to which we owe so much of our export income.

“If it hadn’t been for that we’d be wallowing in the depths of depression with the PIGS.”

Mr Shearer admitted to journalists he faced some resistance from a hard-core within caucus but he was standing firm.

“We’ve had a free and frank discussion and we’re united, on this, or as united as a Labour caucus ever could be,” he said.

The left-outers are a wee bit peeved but the careerists are prepared to put potential jobs before flawed principles and the right, well they’re right behind me.

Failed policies will no longer be part of the Labour lexicon. Instead, we’re getting ready to deliver shiny new lines.”

Mr Shearer said the caucus wasn’t quite ready to go public with those lines yet.

“We’re still chewing a few dead rats and as it’s rude to talk with your mouth full we’ll have to wait until we’ve swallowed them before we’re able to make any further statements,” he said.





Not intellect but real world experience


Trans Tasman observes:

The indication this week Labour would jettison one of its flagship items from the 2011 election campaign (the removal of GST on food and vegetables) underlines just how madcap the policy was in the constrained financial conditions in which the Govt has to operate. Until Labour’s younger brigade show they can compete intellectually, the Opposition will continue to trail in the polls.

You could well question the intelligence of anyone who thought that removing GST on fresh fruit and vegetables was good policy.

However, I don’t think Labour’s problem is lack of intelligence, it’s lack of real world experience.

So few of Labour’s caucus have business backgrounds, so many are former unionists or parliamentary staff.

That might have given them more than enough theories but it is no replacement for practical experience in private enterprise.



Quote of the day from Q+A:

CORIN            And are you confident there will be much better decision-making, that these MOM companies, in general, are going to have better board making decisions?
BILL                I think mixed-ownership companies will, but there’s a real challenge for government with the lessons from Solid Energy. When you look ahead, the companies that the government will own all have their challenges – NZ Post with the shrinking postal market, TVNZ and the digital media environment, a coal company if there is still a coal company. And we are going to have to change the way we work with these companies to ensure that we don’t lose taxpayers’ money. Because the taxpayers’ money in these companies doesn’t come out of the sky; it comes from the PAYE and the GST paid by NZ households. And we have a strong responsibility for the stewardship of that money.

How good it is to have a Finance Minister who understands where the money comes from.

Simple taxes are better


When GST was set up in New Zealand it was deliberately kept simple for very good reasons.

Simple taxes are easier to comply with, more difficult to avoid or evade and less expensive to administer.

The problems which can occur when you start making exceptions are clearly seen in Britain where pasties straight from the oven or cooling naturally will be exempt from a Budget VAT increase but those kept warm will still incur the extra 50p.

It must be all very confusing for those selling food and their customers but Lizzie Fournier from City FM has come up with a chart to help them:

If you click on it you’ll get a more legible version.

Labour here has sensibly back-tracked on its election policy to take GST of fresh fruit and vegetables. Let the mess in Britain be a lesson to them any others who want to tinker with GST.

I’m loath to call any tax good, but simple ones are definitely better.

Hat Tip: Taxpayers’ Alliance.

Users don’t like user pays


A survey shows most respondents resent a surcharge on credit cards:

The survey, commissioned by public relations agency Impact PR, investigated the habits of Kiwi consumers and their perceptions of having to pay additional credit card surcharges.

The research showed the vast majority (90%) of customers would stop shopping at their regular store if a 3% credit card surcharge was added to their purchase.

Businesses have to pay a commission on credit card transactions so they’re just passing the cost on to the customers who’re availing themselves of the service.

However, the issue isn’t necessarily that simple:

Mark Devlin, owner of shopping website, says retailers who add the credit card surcharge are short-sighted.

He says his New Zealand customers have no additional charges of any kind, whether it’s for payment by credit card or freight.

“What we may lose in margin we definitely make up for in customer satisfaction and repeat purchase. We wanted to create a ‘no surprises’ shopping environment where customers could feel confident purchasing a product without having gone through the whole process only to have charges added on the final screen.”

No surprises is a very good policy.

In New Zealand, unless it’s explicitly stated that something is GST is excluded we know it’s included and we’ll have to pay the price that’s stated.

When travelling I find it frustrating to see or be given a price then find it costs more because the price given doesn’t include taxes and other charges.

Nobody likes being charged more than the quoted price and most of us do have a choice of using cash or EFTPOS rather than a credit card if we don’t like surcharges.

However, rather than imposing a surcharge businesses could turn a negative for credit card users into a positive for others by pricing everything at 3% more then offering a discount for cash or EFTPOS.

Keep it simple


Treasury secretary Gabriel Makhlouf delivered a speech to the International Fiscal Association which makes very interesting reading.

Among the points he made were:

. . . There are undoubtedly many causes of the global financial crisis. Just as academics today still debate the causes of the Great Depression, I anticipate that the academic community will still be debating the so-called“Great Recession” for many years to come.  But, as with any sharp, sudden, and protracted economic crisis, we always learn one thing: the conventional wisdom was in many respects, wrong. At the very least, we have learned that risk and return can be badly mispriced.

Whether it was finance company debentures or mortgage backed securities, too many people took on too much risk without knowing they were doing so, because promised returns did not match the risk. . .

. . . But the cost of government is largely determined by government. And accordingly,  taxpayers who restructure their affairs are really playing part in a prisoners’ dilemma – trying to get other people to bear the burden, with the effect that taxes are higher on all of us. . .

. . . It has been said plenty of times before but it still bears repeating: New Zealand’s GST is the best VAT in the world and our strong consistent advice is that it should be protected from exemptions that undermine it.  GST is a simple tax that raises a large amount of revenue, with minimal distortions. Using the GST system to promote particular policies comes at great cost. 

The compliance cost, uncertainty, and complexity of bringing in exemptions and multiple rates are overwhelming as compared with asserted benefits.  There are far more effective ways to promote social outcomes than by fiddling with the consumption tax on a good or service, and far more effective ways to achieve redistribution than taking GST off whole swathes of goods and services.  GST remains our best designed and most efficient tax. . .

Good tax might be an oxymoron, but simpler taxes are definitely better ones.

Second shot in milk war


Pack ‘n’ Save has fired the second shot in what could be a milk price war.

Federated Farmers says reports Pack ‘n’ Save in Auckland has joined Nosh in cutting the price of milk to $1 a litre shows  attention needs to focus on supermarket margins.

Dairy chair Willy Leferink said:

“Frankly, Nosh is doing more to open up competition at the retail end than any narrowly focused inquiry can ever achieve. 

“If Nosh’s milk was priced in Australian dollars and didn’t have the GST our milk attracts, it works out to be equivalent to A$0.68.

“Even Karori New World in Wellington is selling two litres of its budget milk for $2.99, as long as you spend $25 in-store.

“If you remove our GST and price that milk in Australian dollars, then it works out to be equivalent to A$1.01 per litre.  That’s only one Aussie cent more than what Coles is selling its milk for in Australia.  Milk Coles is spending a lot of money each week underwriting.

GST is a significant factor.

I’m not arguing for food to be excluded from the consumption tax but it does need to be taken into account when comparing food prices.

“But if you go to another New World in Wellington that same bottle will set you back $3.65.  That’s not only 22 percent more but tells me that margins at the retail end are pretty healthy

“That’s why we’d like to back Nosh Chief Executive Clinton Beuvink.  People need to support those local dairies and petrol stations that are selling cheap milk.  The big supermarkets rely on being convenient but convenient doesn’t make them the cheapest.

“Federated Farmers hopes this milk skirmish is the first step in a wider retail milk price war between Foodstuffs and Progressive.  It’s happened in the UK and Australia so why not here? 

“The focus really needs to be on the supermarkets because if dairies can sell milk cheaper and a small supermarket like Nosh can sell it as a loss leader, surely Foodstuffs and Progressive can do the same? 

“In two locations at least, Foodstuff franchisees already are,” Mr Leferink concluded.

Fonterra and farmers have been blamed for relatively high prices of milk and other dairy products but they are only part of a chain which adds costs at every link.

Supply and demand stronger influence on price than GST


The main contributer to the .3% fall in the Consumer Price Index in the December quarter was vegetables.

Statistics NZ prices manager Chris Pike said:

Vegetable prices fell 25 percent in the December 2011 quarter, causing a 2.2 percent fall in overall food prices. 

“The larger-than-usual fall for vegetables reflects a supply shortage in the three months to September,” Mr Pike said. “Basically, vegetable prices were higher than normal last winter, then fell to normal levels towards the end of the year. If vegetable prices had remained constant in the December 2011 quarter, the CPI would have risen 0.1 percent.”

Labour’s election pledge to take GST off fresh fruit and vegetables was never based on reason and these figures show supply and demand have a far bigger impact on price than tax.

GST only one factor in price


From Napier MP Chris Tremain’s Facebook page:

I went fresh vegetable shopping over the weekend to compare prices. Here at a market garden I purchased a pumpkin for $3, a head of broccoli for $1.79, and a cabbage for $1.69. Just down the road at the supermarket the same vegetables were over $6, $3.49, and $3.99 respectively. On one day and without seasonal variation over 100% difference in the price. So consumers have a choice to buy cheap fresh vegetables now, 100% cheaper. Do you really think removing GST from these products will make a difference?

All sorts of things impact on the price of fresh fruit and vegetables.

Taking GST off fresh produce won’t necessarily reduce the price by 15%. Seasonal availability, weather and how much of a mark-up retailers choose to charge could just as easily increase the price by that amount or more.

A little tinkering leads to a lot more


Labour’s chances of being in government after the election are slim but we’re already seeing what will happen if their policy of taking GST of fresh fruit and vegetables is implemented.

Heinz Watties has pointed out that canned and frozen fruit and vegetables can be just as nutritious as fresh produce.

Labour’s argument for applying the tax exemption to fresh produce only is that it’s easy to tell what’s fresh and what’s not. But some fresh fruit and vegetables are luxuries and some processed foods are necessities.

How long will it be before the stupidity of fruits like pomegranate being GST exclusive while tax is still applied to a bag of frozen beans or a can of tomatoes leads to calls for  some exemptions to the exemptions? The next step will be calls for the GST exclusions to be extended to processed food.

They won’t stop at canned and frozen food, the calls for exemptions will extend to other basics like milk, bread and rice.

Every exemption leads to added costs and more anomalies which would lead to more calls for more exemptions which would increase costs . . . because a little tinkering always leads to a lot more.

I am reluctant to call any tax good, but simple taxes are better. They are less expensive to collect and administer and more difficult to avoid.

New Zealand’s GST is very simple and that’s the way it should stay.

National’s Napier MP Chris Tremain point out:

“Treating processed food differently from fresh fruit and vegetables should be seen for what it is – a political gimmick,”  Mr Tremain says. “This is consistent with Labour’s wider promises to meddle with the tax system through a complex set of rules and exemptions that would make it more expensive for businesses to invest. None of this will create jobs – other than tax accountants and bureaucrats. . . “

The problem of people not eating enough fresh fruit and vegetables is complex and price is only one factor. It would be much better to tackle the others, including lack or education and low incomes, than muck about with the tax system.

Hat Tip: Keeping Stock & Whaleoil

Businesses like party but not all policies


The latest MYOB Business Monitor special report show considerably more business people favour National than the total of all other parties but they’re less enthusiastic about some policies:

The survey of the policy and voting preferences of over 1000 business owners from around the country found that, if the election was held today, 62% of business owners would vote National, 10% Labour and 3% Act, 2% for the Greens and 1% for the Maori Party, with 21% undecided.

Support for the Government is slightly higher among female business owners (63%), and the owners of larger and more established businesses, although the ACT Party enjoys considerable favour with the owners of medium sized businesses (20 – 199 employees), garnering 8% of the vote with this group. Labour found the strongest support among younger business owners, aged between 18 – 39 years, with 17% likely to vote for the party, 54% for National and 3% for the Maori Party – although a larger number of young business voters are undecided, at 24%.

Support for National is slightly weaker in Wellington (57%) and support for Labour slightly stronger (13%) compared with other areas in New Zealand.

The Government is most popular with business owners in the finance and insurance sector (75% National, 4% Labour, 10% Act) and the Agriculture sector (71% National, 8% Labour, 3% Maori), while Labour enjoys the most favour with business voters in the retail and hospitality sector (17% Labour, 62% National, 4% Greens) and the transport industry (11% Labour, 58% National, 2% Greens).

What on earth has Labour done to get 8% support from agricultural businesses and why would anyone in the transport industry vote Green?

The 17% support for Labour in retail and hospitality also astounds me. They generally have low margins and should have benefitted from policies which make it easier to employ staff.

MYOB general manager Julian Smith says, based on the performance of all parties over the last six months, businesses are firmly in favour of the Government being returned at the next election.

“National is the clear choice for Kiwi business, according to this survey, which looks both at policy and party preferences of New Zealand business owners,” says Julian Smith.

“However, several of the key policies likely to be in contention in the next election, may well see National lose some votes.”

The survey found 44% of business owners would vote against state asset sales, while only 27% would vote for the policy.

That surprises me too – you’d think people who ran their own businesses would appreciate the need to reduce debt and the added accountability there would be at governance level if some assets were partially floated.

Julian Smith says what businesses are looking for – from any party – is a way to cut red tape and the cost of compliance.

“The number one policy that would win support of Kiwi business owners is the simplification of provisional tax rules and processes to make it easier for businesses to meet tax obligations, which 76% would vote for,” says Julian Smith.

Other policies popular with business owners are additional tax cuts, which 63% would vote for, Government-sponsored initiatives to reward innovation and success (61% support) and the creation of a single flat personal and company tax (53% support).

“Interestingly, businesses are also focused on policies that would benefit their employees and the broader community,” says Julian Smith.

Removing GST from selected essential goods and services, such as fresh food and doctors’ visits, would be supported by 57% of the business community, with just 23% voting against. Business owners also supported Mondayising public holidays (45% vote for, 22% against), and the introduction of compulsory Kiwisaver, provided at least 50% are invested in New Zealand (41% vote for, 25% against).

How can they reconcile the desire for less red tape, lower compliance costs and simplified tax with the wish to complicate GST?

How do they think they could get more tax cuts and a single flat personal and company tax as well as a reduction in GST?

It’s often assumed that all business people support the National Party. Unfortunately in my – admittedly biased – opinion, as this survey shows they don’t.

I didn’t expect unanimous support for National and all its policies but I am surprised about the apparent confusion over policies. I’d have thought business people would have a better understanding of economics than the results indicate.

Tax-free income threshold too costly for little benefit


Who said a tax-free threshold on income “. . .  would have only a minimal benefit for a very small number of low income earners.”?

None other than then-Finance Minister Michael Cullen before delivering his 2008 Budget:

His initial preference had been for a tax-free income threshold.

“This would have seen, for example, the first $9500 of income not attract income tax,” Dr Cullen said.

On the surface this had appeared to be an appealing idea.

“However, it became clear that it would have only a minimal benefit for a very small number of low income earners.”

Up to 90 per cent of those earning below $18,000 were on temporary low income – students and youths – or supported by benefits or superannuation.

Dr Cullen said it would deliver less assistance to low income workers than the $3.7 billion cost in the third year warranted, and he “would be unable to provide meaningful relief for those further up the income scale”.

If the costs outweighed the benefits of a tax-free threshold of $9,500 in 2008 how can the benefits of the lower threshold proposed by Labour leader Phil Goff justify the costs now?

Dr Cullen also rejected calls for removing GST on food and petrol saying it would make the tax system inefficient and any gains would be quickly wiped out.

Goff was a senior member of the same Cabinet in which Cullen served.

Even if his duties as Trade Minister took him overseas when Budgets were being set, Goff must have known about options and justifications for choices.

If removing GST on all food and petrol wasn’t a good idea in the last Labour government, tinkering at the edges of that policy by taking GST off fresh fruit and vegetables wouldn’t achieve enough to jsutify the costs in the next one.

Gosh – look at the price of fresh veg


Vegetables were the key contributer to the fall in food prices last month:

Food prices fell 0.8 percent in the December 2010 month, Statistics New Zealand said today. This follows a 0.6 percent decrease in November 2010. Seasonal falls in vegetable prices were the key contributor to lower food prices in November and December 2010.

Vegetable prices fell 7.9 percent in December with lower prices for tomato, lettuce, capsicum, cabbage, and broccoli. This decrease follows a 9.9 percent fall in November. “Prices for green vegetables were affected by unseasonal weather in September and October, and prices in November and December 2010 were still well above usual levels,” Statistics New Zealand prices manager Chris Pike said.

Wonder if Labour still thinks its a good idea to remove GST from fresh fruit and vegetables when once more we see that weather and seasons have a far greater impact on price?


Simple is better


It’s 14 24 years today since a Goods and Services Tax was first introduced in New Zealand.

It was right in the middle of the ag-sag when every cent mattered so I was among the many who bought things in September to avoid the 10% consumption tax.

I don’t remember rushing to buy anything before GST was increased to 12.5% in 1989 and I haven’t done any extra shopping to beat today’s increase to 15%.

Although I did a pre-GST shop in 1986 I don’t remember noticing sharp price increases from October 1 and do recall some goods reduced in price because the plethora of sales taxes on a variety of goods was replaced by a single, simple GST.

Simplicity was and still is one of our GST’s good points.

That Phil Goff and Labour are prepared to tinker with it and end more than a decade of cross-party support for keeping it that way is a sign of desperation.

It could also be a sign they’ve given up trying to win the next election. That’s easier to believe than the idea that they’re really serious about the suggestion zero rating GST on fruit and vegetables would achieve anything worthwhile.

Tax cuts part of bigger plan for economic growth


Discussion on tomorrow’s tax cuts have focussed on who gets what. Although, as Macdoctor points out, who keeps how much of what they earn, would be more accurate.

Setting that aside, while the immediate impact on individuals is important, the long term gain for the economy is more significant:

The Government’s tax changes tomorrow will strengthen economic growth and help New Zealand families get ahead, Finance Minister Bill English says.

“New Zealanders will benefit immediately from tax cuts and they will benefit more over time from the lift in growth and jobs this package will create,” Mr English says.

“But we must remember that these changes are being made for important and over riding economic reasons. This has never been a lolly scramble.

“As well as improving the incentives to work, the package tilts the economy towards savings, investment and exports and away from the unsustainable borrowing, consumption and over investment in housing of the past decade.

“Treasury estimates the tax changes will add about 1 per cent to economic growth over the next few years. They are just the next step in the Government’s wider programme to get the economy growing faster.”

National’s policy will allow us to keep more of what we earn and leave us free to choose what we do with it. It will also rebalance the economy away from borrow and spend to sustainable growth and  the better paying and more secure jobs which come with that.

Contrast this with Labour’s plan to take GST of fresh fruit and vegetables.

That will complicate the world’s simplest consumption tax and add to compliance costs.

If it had any impact on prices the wealthy would benefit far more than the poor. But there’s unlikely to be any price fall from zero rating GST because prices of fresh produce are influenced by so many other factors and are a very small aprt of most people’s expenditure. 

“This is the first part of the most significant tax reform package in New Zealand for nearly 25 years,” Mr English says. “For ordinary New Zealanders it will reward effort, encourage savings and help families to get ahead,” Mr English says.

“At all taxable income levels, the personal tax cuts will more than offset the rise in GST. When other tax base broadening measures such as tighter property investment rules are taken into account, low, middle and high income groups broadly receive about the same proportionate increase in disposable income.

“After the GST-income tax switch, an average income family will be about $25 a week better off, an average wage earner about $15 a week better off and a couple on NZ Super about $11 a week better off. These benefits will actually grow over time as wages increase.

What’s likely to lead to better long term prosperity for us and the country – allowing us to keep more of what we earn or a futile attempt to get us to eat more greens?

Does not compute


The Healthy Food Guide I bought yesterday had two prices printed on the cover.

One was $5.50 including 12.5% GST before October 1 the other, from October 1 was $5.70 including GST of 15%.

Does that mean the extra 2.5% on the cost of the magazine is 20 cents?

I didn’t think so and the handy TV3 calculator confirmed my doubt – the GST increase will be 12 cents.

The company could have rounded the price down to $5.60 but has chosen to round it up eight cents to $5.70.

It may be able to justify the extra eight cents because of other price rises but it shouldn’t try to blame it on GST.

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.

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