27 Jul 2023

Removing GST from food: 'Radical' or 'wrecking ball'?

7:20 pm on 27 July 2023
Te Pāti Māori co-leader Rawiri Waititi.

Te Pati Māori co-leader Rawiri Waititi. Photo: RNZ / Samuel Rillstone

Radical is how the Te Pati Māori describes its own tax policy, and National agrees - but for different reasons.

A big part of it is removing GST from all food - not just fruit and vegetables - but a tax expert is warning that will help the rich more than the poor, not to mention create plenty of work for people like him.

Te Pati Māori also wants to make the first $30,000 of income tax-free, gazumping the Greens' proposed $10,000 threshold. It would be paid for by introducing new tax brackets at the top - 42 and 48 percent for income over $180,000 and $300,000 respectively - as well as taxes on wealth, empty houses, foreign companies and a higher company tax rate.

"Te Pati Māori's radical high-tax agenda would send a wrecking ball through New Zealand's economy," said National campaign chairperson Chris Bishop, calling it "a terrifying glimpse into what a re-elected Labour government would be like".

"Radical is a good thing," co-leader Rawiri Waititi countered on Thursday evening, talking to RNZ's Checkpoint. Without radicalism across the world, you know, you wouldn't see very many changes for minorities, for indigenous peoples and especially for those who are living in poverty.

"We have a broken tax system in this country which has fuelled extreme wealth inequity and it's only getting worse. And if we don't come up with you know, with radical, transformative tax policy, then we will continue to see the gaps widen between the rich and the poor."

While Prime Minister Chris Hipkins has ruled out a wealth tax, other senior Labour MPs - such as former Revenue Minister David Parker - remained in favour.

National deputy leader Nicola Willis earlier on Thursday said Labour was about to bring back its old GST-free fruit and vege policy, which it unsuccessfully campaigned on in 2011 when Phil Goff led the party.

"This is information that has come to me that I believe to be true."

Labour has not denied it, despite Finance Minister Grant Robertson as recently as March calling the idea an "absolute boondoggle" to administer.

Food prices have gone up faster than overall inflation, rising more than 12 percent in the year to July.

While removing GST from food is popular with voters - more than three-quarters in favour in a Newshub poll last year - experts tend to disagree.

"It's certainly something that can be done, but it would be complicated and it really depends on the details of how you define what food you are taking it out," Deloitte GST partner Alan Bulo told Checkpoint.

"Do you take it off all food or do you just take it off fresh food and vegetables? In either case, there's still going to be something on the boundary that come through.

"And whenever you've got a boundary for something like GST, you create tensions, you create definitional issues and put bluntly, you create a lot of work for people like me which is not necessarily the best use of resources for the country."

Te Pati Māori's policy would simply take the 15 percent tax off all food, offsetting the impacts of junk food with more investment in health.

"When you come and eat at the marae we don't say well, you can eat some of the things on the table," Waititi said. "Our thing is giving our people choice, but we want less regulation, less government, more freedom and more dignity for our people… at this particular time, our people just need to put bread and butter on the table."

In 2018 the Tax Working Group looked at the issue, and concluded removing GST from all food "would provide a greater absolute benefit to higher income households than lower income households… It is a poorly targeted mechanism for improving progressivity [sic] because in absolute terms higher income households spend more on such goods than lower income households do."

Bulo said it would cost about $3.4 billion in revenue for the government - an "awful lot of money".

Waititi said the party's high-income and wealth taxes would offset that.

"This is transferring the burden of tax because, you know, GST on kai is a regressive tax. And so what we're trying to do is, is, transfer the wealth tax."

Another problem, Bulo said, is that there was no guarantee removing GST would actually make food any cheaper - suppliers and retailers might figure they can hike their prices back to what they were before, and pocket the difference.

"Overseas studies have looked at when there have been changes to the GST rules and they've found that frequently, only a small and sometimes relatively small proportion of the savings are actually ultimately passed on to the consumer."

Hipkins said Labour's tax policy - and if it includes taking GST off fruit and vegetables - would be announced in time.

"I'm not going to comment on it, on a hypothetical policy that I haven't announced."

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