One Question Quiz
Chris Hipkins launching Labour’s election slogan in July (Photo: Toby Manhire)
Chris Hipkins launching Labour’s election slogan in July (Photo: Toby Manhire)

OPINIONOpinionAugust 11, 2023

One simple GST tweak to put Labour on the front foot

Chris Hipkins launching Labour’s election slogan in July (Photo: Toby Manhire)
Chris Hipkins launching Labour’s election slogan in July (Photo: Toby Manhire)

Everyone is expecting Chris Hipkins to announce fruit and veges will be exempt from sales tax. If they’re going down that road, there’s another product line crying out for a carve-out.

For some time, the message from Camp Hipkins has been to expect the Labour Party tax policy in a week or so, and it turns out “a week or so” can run for a full month, especially when you’re buffeted by inconveniences such as a justice minister getting arrested and a revenue minister scarpering out the back. 

But the day has come, with Labour supporters exhorted to gather in their hundreds in Lower Hutt on Sunday for a “big moment in our campaign”, a “major announcement about Labour’s plans to help Kiwis with the cost of living”. 

Nicola Willis is not expected in person, but she’ll be there in spirit, in her capacity as gazumper-in-chief of Chris Hipkins’ adventures in tax. At the end of last month, the National finance spokesperson delighted in announcing she’d been leaked her rivals’ tax plans; they involved reheating “a failed old Labour policy of removing GST from fresh fruit and vegetables”, and, following the wealth tax kerfuffle, exposed further discord between the PM and the finance minister, animated in beetroot and boondoggles

Grant Robertson was far from alone among the exemption-sceptics. The Michael Cullen-led tax working group commissioned by the Labour government after the 2017 election found that “GST exceptions are complex, inefficient and create high compliance costs”. International evidence suggested that if the question was how do we help lower-income earners get by, the answer was not meddling with GST. “We could consider that income tax or welfare transfers are likely to achieve greater distributional benefits, with lower fiscal and efficiency costs, than having a system of multiple GST rates,” found Cullen’s group.

As Phil Goff found to his discomfort in 2011, getting rid of GST on a particular category, whether it’s fruit and veg, or fresh produce, food as a whole or “healthy food”, serves up a nightmarish taxonomic soup. Among international cautionary tales: a court case in Australia on whether “oven baked Italian flat bread” meets the GST-exempt definition of bread, another in the UK about whether a Pringle is a potato chip, another in Ireland over whether Subway rolls were “bread” or “confectionery or fancy baked goods”. A stimulus, at least, for the legal profession.

All of which leaves Labour in a pickle (not a fresh food, I guess). Public support is not to be sniffed at, and polling for Newshub last year found a whopping 77% supported ditching GST on food. In an interview with the Spinoff this week, Chris Hipkins said that while the party’s tax policy would be informed by evidence, facts and expert advice, “having said that, public opinion also matters.” The more immediate and alarming polling for Hipkins, however, suggests a hill to climb, with Labour support now averaging out at just less than 30%. After a prime ministership defined so far by caution and deck-clearing, the trajectory now sends a plain message: time to Do Something. Is pledging to remove GST from fresh fruit and veg – no longer a surprise, dusted off from the past, roundly criticised from an evidential point of view by everyone including your finance minister – enough of a something?

It isn’t, not really. If the Labour tax plan way back a week-or-so ago was in fact – and we don’t know – about GST on fruit and veg and that’s about it, then it surely won’t be by Sunday. There will, obviously, be a mechanism to pay for it, and it’s a good bet that could involve a further lift in the top tax rate. New Zealand’s 39% on income dollars over $180,000 is still lower than in the UK (top tax rate 45%) and Australia (47%). Robertson and Hipkins would relish a fresh opportunity to frame National as wanting top earners to pay less tax.

But back to the GST bit. Labour could go wider than the produce aisles and get rid of GST for all food, making it simpler, if not entirely simple, and empowering the new grocery commissioner to sheriff the bejesus out of the supermarkets in ensuring they pass it on. After all, we did learn just today that food prices went up 9.6% in the last year. Exempting all food would, however, cost plenty more, wiping as much as $5 billion from crown revenue. 

There are other options. Once the seal is broken on GST exemptions, you could look, say, to the cause of the environment. In Sweden, for example, VAT is halved for repairing goods, to discourage throwaway consumerism. 

There’s another option, one so compelling as to be – as long as different GST categories are being explored – a no-brainer. Sanitary products. Since January 1 2019, tampons and pads, menstrual cups and underwear have been GST-free in Australia, following a protracted campaign to bring them in line as “essential items” alongside, for example, sunscreen and contraception. They followed a lead from Canada, where sales tax on tampons was ditched in 2015. The UK followed suit in 2021.

The idea has been mooted here, too. An Auckland University Law Review paper in 2019 made a compelling case for “the exclusion of basic food and menstrual products from goods and services tax”. Even before then, Jody Hopkinson launched a petition to make sanitary products tax free in New Zealand (she says that’s just the start, and menstrual products should be fully subsidised by the state). 

If Australia is the model, Labour could go further. Other health products GST exempt across the ditch include nicotine patches, condoms, femidoms and lubricants. On fruit and vegetables, Labour’s detractors have a bondooglebyte of criticism, data and derision stored and ready to deploy. It might be trickier on period products. Recall, for example, how Christopher Luxon fell into a trap in saying, yes, National would reintroduce prescription charges on contraception, even though Labour had done nothing for five years to remove those very same charges?  

At minimum, Labour needs to reset the debate. The pressure is on Hipkins to pull something out of his sleeve on Sunday, so that the “major announcement” amounts to more than what Nicola Willis told us a week or so ago. 

Keep going!