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Published: July 28, 2023, 3:36 a.m.

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A GST expert says it is possible to remove the tax from fruit and veges, but whether it\'s good policy is another question.

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National\'s Nicola Willis claims it\'s part of Labour\'s election tax policy, that\'s been leaked to her.

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Labour won\'t confirm or deny it.

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Deloitte GST specialist Allan Bullot told Mike Hosking we can make rules to do just about anything, but it might not be the best use of resources.

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He says the tax working group looked at a number of studies, including from overseas, and found only 30 percent of savings end up in consumers\' hands.

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\'Not a bad idea\': Is GST off fruit and veges Labour\'s new tax policy?

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-Thomas Coughlan, NZ Herald

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Labour is planning to resuscitate a policy from its disastrous 2011 election campaign to revive its ailing electoral hopes: taking GST off fresh fruit and vegetables.

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That is according to National Party Finance spokeswoman Nicola Willis who said\\xa0she had been handed details of the plan.

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Willis has form in this area, claiming earlier this year that Labour was in the advanced stages of implementing a wealth tax, which turned out to be true.

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The\\xa0Herald\\xa0has confirmed Labour has looked at changes to GST as part of its tax policy - although the final details have not been announced. It is the second major leak from Labour in as many days.

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Willis warned the tax would hand millions to some of the country\\u2019s largest and most profitable companies who would absorb the cut, and fatten their margins.

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A Labour Party battered and bruised from\\xa0losing its fourth minister in seven months, and beset by a major leak from caucus this week, did not deny the tax rumours, with at least one MP saying the policy sounded like a good idea.

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Prime Minister\\xa0Chris Hipkins, speaking from Christchurch, did not deny the rumours.

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\\u201cI\\u2019m not going to announce a tax policy today and Nicola Willis should be focused on making her own policies add up,\\u201d Hipkins said.

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Police Minister Ginny Andersen, a Hipkins loyalist, noted it was an idea that had been \\u201cconsidered before - it\\u2019s a nice idea\\u201d.

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\\u201cYeah it\\u2019s not a bad idea,\\u201d she said.

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National\'s finance spokeswoman Nicola Willis said she had been leaked the policy immediately before Question Time on Thursday. Photo / Mark Mitchell

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Asked whether the plan was actually Labour policy, Andersen said it would be \\u201cpre-announcing the Labour Party tax policy\\u201d.

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The Government\\u2019s new Revenue Minister Barbara Edmonds also did not deny Labour would be taking GST off fresh fruit and vegetables.

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\\u201cEvery party will have the ability to release their tax policies and ours is coming out in the coming weeks,\\u201d Edmonds said.

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\\u201cI\\u2019m not going to release our tax policy without the Prime Minister,\\u201d she said.

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Edmonds took over the role just this week after her predecessor\\xa0David Parker asked to be reshuffled out of the job saying it was \\u201cuntenable\\u201d for him to continue.

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Parker did not stop to take questions on his way to the House on Thursday - the fifth time he has walked away from waiting media since Hipkins revealed he had killed Parker\\u2019s beloved wealth tax.

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Illustration / Rod Emmerson

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The policy, if correct, puts the party at odds with economists, at odds with its own Tax Working Group, at odds with coalition partners the Greens - and even at odds with Finance Minister Grant Robertson who rubbished the idea as recently as May.

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\\u201cGST is a comprehensive tax which makes it very easy to administer and people in the room who\\u2019ve been in other countries with more exemptions will know it becomes an absolute boondoggle to get through,\\u201d Robertson told Newshub in March last year.

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\\u201cIf you do it off fresh fruit and vegetables, or even staple products, then you get into an argument of what\\u2019s the difference between beetroot and canned beetroot, and if you want to make a real impact on the lowest income people you wouldn\\u2019t cut the tax off fresh beetroot - that\\u2019s not what people on low incomes buy,\\u201d he said.

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Green Party co-leader James Shaw said his party thought a GST cut was the wrong way to go, arguing that other countries had issues in deciding what counted as \\u201cfresh\\u201d and what did not.

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In the United Kingdom, for example, chickens were taxed at different rates in the same establishment depending on whether they were cooked or not.

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\\u201cWe think it\\u2019s better to focus on people\\u2019s incomes,\\u201d Shaw said.

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Shaw cited his own party\\u2019s policy which was to implement a wealth and trust tax to pay for tax cuts for 95 per cent of income taxpayers.

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New Revenue Minister Barbara Edmonds. Photo / Angus Dreaver, RNZ

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Of all the parties in Parliament, only Te P\\u0101ti M\\u0101ori backed the GST policy, but it wants to go further, taking GST off all food. On Thursday,\\xa0it unveiled a suite of other tax changes, including income tax cuts paid for by a wealth tax and hiking income and company tax.

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Infometrics chief executive and economist Brad Olsen described the idea as \\u201cpure politics over economics - I\\u2019ve never, ever, spoken to an expert in the field before in economics or tax policy who says \\u2018this is good policy, love it\\u2019. Everyone thinks it\\u2019s diabolically silly.\\u201d

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Olsen said there was no way to guarantee the GST cut was \\u201cpassed on and, more importantly\\u2026 passed on in perpetuity\\u201d, warning firms would simply absorb the GST cut, particularly in a time of high inflation.

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Deloitte GST Partner Allan Bullot said the problem with taking GST off fresh fruit and vegetables was how to make it work, and whether suppliers and retailers will simply hike prices.

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\\u201cI think that would actually be quite difficult to do. Then there\\u2019s ongoing [questions] of how do you do it?

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\\u201cWhat do you do if the supermarket suppliers themselves put the prices up to the supermarkets [or] if you\\u2019ve got a non-resident that says, \\u2018Oh, I see that New Zealand is taking GST off food - I\\u2019ll crank my prices up\\u2019.\\u201d

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He said it raised questions of whether seeds and fertiliser should also be GST exempt.

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Sir Michael Cullen\'s Tax Working Group called a GST exemption "complex, poorly targeted for achieving distributional goals and generate significant compliance costs". Photo / Mark Mitchell

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NZ Initiative chief economist Dr Eric Crampton told TVNZ\\u2019s Breakfast this morning that removing GST from some foods had worked \\u201cvery badly\\u201d in other countries, with some becoming tied up in litigation over which foods qualified.

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Even taking GST off all foods - as proposed by Te P\\u0101ti M\\u0101ori - would have saved the lowest-income households only about $17 per week at the time the Tax Working Group looked at the issue in 2018.

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\\u201cYou could do a lot more good by simply increasing transfers to lower income communities by above that amount, rather than trying to take GST off of food.

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\\u201cSo generally you want to have an increase in broad-based taxes - not punch holes in GST - and then use the money to give it to people who you think need it.\\u201d

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The Tax Working Group, established by Labour in its first term and led by former Labour Finance Minister Michael Cullen, dismissed targeted GST exemptions as \\u201ccomplex, poorly targeted for achieving distributional goals and generate significant compliance costs. Furthermore, it is not clear whether the benefit of specific GST exceptions are passed on to consumers.\\u201d

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It said taking GST off all food and drink - a far broader policy than what Labour is proposing - would cost $2.4b a year in 2018, and benefit the wealthiest 10 per cent of households more than three times as much as the poorest 10 per cent.

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Edmonds said that she was a \\u201cteam player\\u201d and that she would implement the Labour tax policy.

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\\u201cWhatever the tax policy that our party will release, I will make sure if I come back as the Minister of Revenue, I will make workable,\\u201d she said.

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Having different rates of GST on different items is often criticised for creating a compliance burden for businesses, which is passed on to consumers.

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Edmonds said this challenge was not insurmountable.

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\\u201cThere is always a compliance issue with any tax regime and it\\u2019s something that ministers and any party would need to work through,\\u201d she said.

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Labour had planned to announce its tax policy last week but pulled the announcement sometime after the party\\u2019s Tuesday morning caucus meeting.

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Thomas Coughlan is deputy political editor of the\\xa0New Zealand Herald, which he joined in 2021. He previously worked for Stuff and Newsroom in their Press Gallery offices in Wellington. He started in the Press Gallery in 2018.

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