A shopper buying six of the most-purchased fruit and vegetables in Countdown this week would save about $3 if there were no GST on those items.
National deputy leader Nicola Willis said on Thursday she had been leaked Labour plans to cut GST from fruit and vegetables.
Te Pāti Māori is also campaigning to remove GST from all food.
Stuff tracks supermarket prices using some of the most frequently bought items, including tomatoes, bananas, onions, potatoes, broccoli and carrots.
This week, a basket of those items bought from Countdown in Auckland would have cost $25.25. Without GST, that would have come to $21.96.
The biggest saving would have been on the most expensive item, tomatoes, which would have dropped in price for a kilogram from $9.29 to $8.08.
Finance Minister Grant Robertson said in May it would be too difficult to exempt food from GST.
“It's a very, very challenging thing to administer,” he said, adding that he thought supermarkets would likely benefit more than consumers.
Food prices are rising fast, and fruit and vegetables have increased 22.5% in price in a year.
Deloitte GST specialist Allan Bullot said international situations showed there were often difficulties ensuring that the value of a GST cut was passed on to taxpayers, as Robertson suggested.
Supermarkets set prices at a level the market would bear, he said.
He said Te Pāti Māori’s suggestion of removing GST from all food, at a cost of more than $3 billion a year, was the more expensive option but would be somewhat simpler to administer because it would not require anyone to determine what counted as which food group.
NZ Initiative chief economist Eric Crampton said questions around boundaries when there were sales tax exemptions caused problems overseas.
“It would cause nightmares or litigation in deciding what is tax exempt and what is not. While Winston Peters had joked that a panel of grandmothers might be able to tell what should count and what should not, look at how this has played out in the real world.
“In Australia, someone decided that bread should be tax exempt but crackers should not. One result was that a bread expert had to be flown in from Italy to help decide whether a type of mini-ciabatta should count as a cracker or bread for tax purposes. I wish I were kidding.
“They have to have official bread deciders. In the UK, it took years to sort out how and whether VAT should apply to tea cakes.
What counts as fruit and vegetables? Eric Crampton warns it might not be straightforward.
“Maybe you think fruit and vegetables is simpler. Well, think again. Frozen and canned vegetables are no less nutritious. Should they count? If so, what about frozen fruit? Frozen fruit in a sugar syrup? How much sugar before it’s considered a jam rather than a fruit preserve? Where do you draw the line for tax purposes? Someone would have to decide on all of that, and every bit of it would draw enormous fights.”
Bullot said there were also questions about fairness.
People at lower income levels spend more of their income, so would benefit more in percentage terms. But richer households spent more overall, so would benefit the most in dollar terms.
“The Tax Working Group estimated the savings for a rich family compared to a poorer family would be over three times.
“Can we take GST off food? Yes we can. What are the downsides of doing so? It’s very expensive doing it that way, there are going to be boundary issues to work through. Is it the best way of getting targeted help to people who need it? Internationally various studies have shown it’s probably not. If you take GST off food, how much of that will actually stay in the hands of the consumers as opposed to being ultimately taken out through the value chains that come through?”
Crampton said if the Government did not want to have to operate on reduced revenues, it would have to increase the rate of GST on other goods, or add other taxes.
“If it were intended as a tax cut, it would be far better to reduce income tax rates, to inflation-adjust the income-tax thresholds, or to reduce the overall rate of GST.
“If those proposing exemptions for fruit and veg wanted to improve health outcomes, giving money to Pharmac and hiring doctors and nurses would make more sense. If they wanted to make things more affordable for the poor, it would be better to reduce tax rates at the bottom, increase benefits, or both.”
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How much difference would removing GST from fruit and veg really make? - Stuff
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