The government’s plan to exempt fresh fruit and vegetables from GST did not come as a surprise. Nor did the volley of criticism it received in response, writes Catherine McGregor in this excerpt from The Bulletin, The Spinoff’s morning news round-up. To receive The Bulletin in full each weekday, sign up here.
Voters hungry for Labour’s GST-free fruit and veg
After weeks of tax announcements and policy pledges from other parties, yesterday it was Labour’s turn to dangle a carrot in front of voters – and “not just any carrot, but a delicious, GST-exempt carrot”, as Toby Manhire puts it this morning on The Spinoff. The worst kept secret in politics was confirmed by prime minister Chris Hipkins and finance minister Grant Robertson: If Labour forms a government, GST will be removed from fruit and vegetables, both fresh and fresh-ish (more on that in a minute), from April next year. The policy is widely popular with the public. The NZ Herald’s Adam Pearse reports that a July poll by Labour’s pollster, Talbot Mills, found two thirds of all respondents in favour, as were a whopping 80% of swing voters. The policy will cost an estimated $2 billion over four years, with an average expected saving of $4 to $5 per household, per week – dismissed by National’s finance spokesperson Nicola Willis as “a tax change worth less than a kumara”.
A resounding thumbs down from economists
The policy may be popular with voters, but experts and commentators mostly hate it. The government has tried to allay one of their major concerns – that supermarkets won’t pass on the full saving to customers – by stating that the newly established Grocery Commissioner will monitor pricing behaviour and take action if necessary. However, unless the commissioner is given enormous resources to monitor the ever-changing daily price of fresh produce, “that claim may yet prove to have been the greatest boondoggle of all”, writes Businessdesk’s Pattrick Smellie (paywalled). This morning Stuff’s political editor Luke Malpass delivers perhaps the most scathing response so far. Under the headline ‘The idiot cousin of Labour’s craven desperation’, Malpass calls it “a contender for being the stupidest and most principle-free decision of a major party of this election campaign” (The Post, paywalled). Even the famously tax-averse Taxpayers’ Union has come out against the policy. “Tax purists will say we should not do this,” retorted Hipkins yesterday. “They will always be able to find a reason not to do something but they are not the ones struggling to pay their grocery bills.”
A simple GST system made complex
What foods qualify? The government says the boundaries “will be based on whether the fruit or vegetable has been ‘processed’, meaning cooked or combined with other ingredients, explains Interest’s Dan Brunskill. “This rules out anything canned because of the heating process that accompanies canning.” Under these criteria, a prepared salad with croutons wouldn’t qualify, nor, presumably, would a frozen stir fry veggie mix with Chinese five-spice powder. The government will set up a special “consultative expert group”, convened by the Inland Revenue Department, to adjudicate on tough cases, reports Stuff’s Malpass, but critics aren’t convinced it will be enough. “Removing GST from specific items, while seemingly benevolent, has far-reaching implications. It introduces administrative complexity, bordering on the absurd,” writes the NZ Initiative’s Oliver Hartwich for The Australian. “The definition of what is and is not taxed becomes a battleground, sucking up legal resources and fostering market inefficiencies.”
Labour promises ‘meaningful’ changes to Working for Families
The GST exemptions wasn’t the only tax policy announced yesterday. Labour is also promising to increase the In-Work Tax Credit by $25 to $97.50 a week from April 2024, which social development spokesperson Carmel Sepuloni said will “deliver targeted meaningful cost of living support to around 160,000 low and medium-income working families”. In addition, Working for Families will be tweaked to raise the abatement threshold (the income level at which payments begin to reduce) to $50,000 a year. “Combined with the GST cut, Labour estimates the immediate WFF changes will put about $47 a week in the pockets of households with working parents and children,” writes Businessdesk’s Smellie (paywalled). “It is a package designed to capture the attention of the working women that Labour needs to attract back, if its dwindling hopes of forming the next government are to be kept alive.”