7 reasons why cutting GST on food will not help

Written By: - Date published: 9:00 am, April 29th, 2008 - 30 comments
Categories: tax - Tags:

Scrapping GST is a classic, populist issue that sounds delicious in times of high food prices but at closer inspection – it doesn’t taste good at all and isn’t the best way to help those struggling to buy food.

The cost of food and fuel has dominated the media over the long weekend and there will be many of you, like me, that just wanted this idea of removing GST to be the silver bullet. But sadly it won’t.

Here are the 7 reasons why:
1. We are global citizens and we are all facing a global food shortage. Drought (climate change), armed conflict and a surge in demand from China and India mean are the causes. Cutting GST on food is not going to do a thing about our food prices which are set internationally. Another wave of increases would take us back to square one.

2. Having two different sets of rules for GST is complicated and costly for food retailers to administer – and you can guess whom they are likely to pass their new cost onto.

3. And new costs are created for Government as well – money that could be spent on public services.

4. It will create a new, energy-sapping and probably never ending debate about what should have GST attached and what shouldn’t. Australia has this problem – cooked chickens have GST attached but cooked cold chickens do not. You have probably heard the stories. And what about taking GST off other healthy/desirable goods and services? Nicotine patches? Pilates DVDs? Doctors visits?

5. This one I just know will happen: in the initial confusion about the new prices of food, retailers will take a slice of the cut for themselves, meaning prices may not decrease by the full 12.5%. This is exactly what happened immediately after the changeover to the Euro.

6. It’s regressive – wealthy people spend more on food and will receive a bigger benefit.

7. It slashes probably 100’s of millions off our tax revenue as a country. This is money we need (especially during these times of higher economic stress) to spend on teachers, roads, doctors, Working for Families, nurses… So we either need to sack some of these people, halt some of these policies or increase taxes.

Those on no or low incomes do need more support at this time – so thank god for Working for Families, which is real financial assistance in the hand to those who need it.

30 comments on “7 reasons why cutting GST on food will not help”

  1. Phil 1

    Pretty good summary sparkie – I agree with virtualy all of your reasons… except the regressive part “wealthy people spend more on food”

    Really? I doubt it.

    I think it’s probably true that wealthy people spend more nominal dollars on food, but the idea that they would spend a greater proportion (which is necessary for your claim to hold true) just doesn’t make any sense

  2. Graeme 2

    Phil beat me to it – one of the charges against GST is that it is regressive – punishing those who need to spend more of their money on food etc. while those who can afford to save/invest don’t have to pay so much (proportionately).

  3. Tane 3

    Of course, we could always abolish GST and pay for the shortfall by creating a new tax bracket for individuals on more than $100,000 a year.

  4. Steve Pierson 4

    also, the benefit of a reduction in GST would be shared both by consumers and business – the cost would go down say half the amount of GST (depending on the elasticity of demand for the product), and the profits for the businesses supplying the product would go up accounting for the other half.

    To a degree, that’s going to happen with any tax cut, but GST in particular would have less benefit to the consumer relative to the amount of lost tax revenue.

  5. Good set of reasons sparkie – my only issue was the regressive one but people have already said that. Overall a good post on a difficult issue.

  6. Matthew Pilott 6

    I find this very similar to the petrol tax issue especially points 1, 5 and 7. Cutting excise taxes or GST on petrol will give a short term benefit for consumers. Then our mate Ahmadinejad gets lippy, the markets get skittish and it’s “hello square one, I missed you for those two months we were apart”…

    Tax it, but use the money investing in alternatives such as a modern rail system, good public transport, and maybe easing those ridiculous restrictions on electric cars!

  7. r0b 7

    See also John Armstrong on this topic, and the (current) bipartisan agreement not to mess with GST:

    http://www.nzherald.co.nz/section/1/story.cfm?c_id=1&objectid=10506804

  8. randal 8

    at the moment it has become code for who is in the national party/act camp and who is spreading rumours about how the gubmint could do it if they only cared and so therefore vote national/act and all our problems will just errr ummm vanish!

  9. Instead of reducing GST on food, why not just cut GST across the board – back to 10%? Or even remove it entirely, as Tane said?

  10. Steve Pierson 10

    Remove GST and partially fund the lost revenue via a 45 cent tax bracket coming in at $100,000

  11. Draco TB 11

    GST is a funny tax and seriously needs looking at. Somebody selling their labour to dig a hole has to charge GST. Somebody selling their labour to move money doesn’t. This is, IMO, a fairly serious discrepancy. This is just one example.

    That said I don’t think GST should be removed from food. I think it should be applied far more evenly across the board so that the advantages and disadvantages apply equally to everyone.

    Now, if the unions really wanted to do the best for their members they would be telling them to get off wages and become self-employed. People would become much better off doing that than dropping GST from food.

  12. A really good post, with the exception as others have noted of the issue of how regressive GST is. In an absolute sense wealthier people pay more GST, but as a percentage of income they tend to pay less as they save less.

  13. gobsmacked 13

    Reason, schmeason. Hey, it’s an election year. Politics will trump economics.

    In the final week of the 2005 election campaign, National suddenly announced they would cut GST on petrol. So get ready for …

    Scene: a supermarket, November 2008. Shoppers, all with children (must be cute, no runny noses). John Key in his smart casual, one of us, pushing laden trolley (memo: Lion Red NOT Corona).

    “As a Kiwi parent myself … price of cheese … ordinary, decent Kiwis … hard-working Kiwi taxpayers … we will review GST on food … Labour say it can’t be done … bureaucrats say so … tell that to these kids .. they deserve better … time for a change!”

    Just visible, Bill English in background, smiling through clenched teeth.

    (Note to JK from McCully: say “review” quickly, sounds like “reduce”. We’re targetting viewers, not listeners).

  14. Tane 14

    Now, if the unions really wanted to do the best for their members they would be telling them to get off wages and become self-employed.

    Draco, are you suggesting process workers quit their jobs and set up their own mini factories in their back yards?

  15. r0b 15

    with the exception as others have noted of the issue of how regressive GST is

    Any suggestions there David?

  16. Steve Pierson 16

    GST is a regressive tax, so no GST on food would not be regressive, it would lessen the tax burden more for the poor, and since the poor spend more of their income on food focussing on food alone would be more progressive – but it would be the rich who benefit most in dollar terms.

  17. Phil 17

    Actually economic theory changes it’s tune somewhere between second and third year university on GST as a regressive tax.

    Basic economic theory say’s its regressive – those who can save (ie; NOT spend) pay less of their total income to GST. However, once you add in time horizons and stuff like drawing down savings (where you’re spending more than you’re earning in retirement) it balances out and we all end up paying pretty much the same rate.

  18. Graeme 18

    Somebody selling their labour to move money doesn’t. This is, IMO, a fairly serious discrepancy. This is just one example.

    Adding GST to debt like credit cards and mortgages would go down really well…

  19. Matthew Pilott 19

    Phil – that rings a few bells. In that case, I’d say it’s more regressive – if we’re looking at the ‘here and now’ of families struggling to pay bills, as opposed to the earnings life cycle of the individual.

    It’s pretty vague in its regressive/progressive nature – these terms only fit well with income taxes, not those on expenditure.

  20. roger nome 20

    I say NZ-grown fruit and veges should be tax-free. That would make us healthier, and would boost our food-security (i.e. what would we do, if for some reason our food imports were cut off? About half of our food is currently imported – in such an event many may starve).

  21. Ari 21

    Removing GST on food isn’t so much regressive as simply “not progressive”. It removes the most regressive element of GST, but it still doesn’t take away the fact that the wealthy will buy more food and thus get a larger tax break.

    Personally, I think GST is better gone altogether, as expense taxes are terrible to manage and inherently regressive in some form or another.

  22. DS 22

    “I say NZ-grown fruit and veges should be tax-free.”

    While I can understand the sentiment, such a loophole would put us down the road to an Australian-style GST mess (you will get disputes over what counts as NZ-grown, and what counts as fruit and veges). Removing GST on food completely would be easier, but you would still get grey areas (pet food, for instance?).

    The way to deal with GST is either cut it back to 10%, or scrap it entirely.

  23. Draco TB 23

    Draco, are you suggesting process workers quit their jobs and set up their own mini factories in their back yards?

    No, they would still work at the same place and for the same people but they would take care of their own taxes, ACC levies etc. When they do this work related expenses become tax deductible which they aren’t ATM for the average worker.

    My nephew is a builder. He contracts his labour out and does his own (well, he has an accountant) taxes etc. Recently he has had to go on wages for the first time in his life and it’s costing him more. He cannot save anywhere near as much as he was when he was a contractor.

    My advice to workers – get off wages and go on contract. Get a good accountant. I happen to think that the unions, to remain relevant, need to help their members do this.

  24. deemac 24

    an accountant from PwC (not a source I often agree with) explained on Radio NZ in words of one syllable why it was a bad idea. Scrapping GST on food would mean no tax cuts OR tax rises elsewhere – and huge bureacratic costs. Still, bad ideas have cost elections in the past and will probably do so in the future. As he said, if you are worried that poor people can’t afford basics, give them more money.

  25. Draco TB 25

    Adding GST to debt like credit cards and mortgages would go down really well

    I just said there was a discrepancy – I didn’t say I had a solution. Although, it has been suggested that if we cut GST down to ~1% and applied it to everything we may be able to get rid of income tax.

  26. AncientGeek 26

    I was around when GST was introduced. In fact I was helping install accounting systems everywhere specifically because people needed them to cope with GST.

    This was in the mid-80’s and a lot of businesses couldn’t tell you if they were making a profit on a month by month basis. They didn’t have adequate accounting systems. Some of those businesses were reasonably large. A lot of them would only do their accounting when they had to – when they had to pay taxes. Otherwise they just looked at the state of their bank balances.

    One of the major benefits of GST was that it forced businesses to be come more efficient and to start understanding what was happening.

    Personally I’d hate to see some items become GST exempt. All that does is increase the complexity of running a business, and therefore the costs. Paradoxically it would happen the most in the businesses that have some exempt items in their range. They’d have to start putting extra systems in place to cope. They’d have to put prices up to cover the cost.

    Bad idea. A better idea would be to look at the areas that are currently exempt and remove the exemption if possible. They were the areas that in 1986 were considered to not be cost-effective to collect from. Maybe they are now. Reduce the complexity – don’t increase it.

  27. higherstandard 27

    And even Don Brash is in broad agreement with you chaps.

    http://www.nzherald.co.nz/category/story.cfm?c_id=77&objectid=10506943

  28. Phil 28

    “… you chaps”

    Are the authors of thestandard really “chaps”?

    My suspicion is that they do not meet the official criteria…
    http://www.thechap.net/content/section_epistolary/am-I-chap.html

  29. lprent 29

    Phil: it looks like someone spoofing the concept. I’d say the posters here would fit that bill.

  30. Richard Williams 30

    Any exemption from GST for food (or any other item) is just making the system unneccessarily complicated. A much better idea is to simply reduce the GST rate to 10%. This is a simple solution that requires no extra work for businesses. This will have an immediate effect for everyone on almost everything. After all, GST was originally set at 10% when we were promised lower personal tax rates as a justification for introducing it in the first place. Then the government promptly increased the rate to 12.5%.

    Note that point 5 in the original post is fundamentally flawed. Does no-one understand simple arithmetic these days? Removing GST would not reduce prices by 12.5%. Taking the GST off means reducing the price by 1/9th – or 11.11111%!

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    During my time in the Pentagon I had the privilege of sitting down with military leaders and defence and security officials from a variety of Latin American nations. Sometimes I was present as a subordinate assistant to a senior US defence department official, sometimes as part of a delegation that ...
    KiwipoliticoBy Pablo
    1 week ago
  • Māori Language Week with The Civilian
    Kia ora, Aotearoa. It’s that magical time of year. Te Wiki o te Reo Māori. In English, the week that frightens talk radio. As you probably know by now, all your favourite media outlets are participating, some more successfully than others. Stuff has changed its name to Puna for the ...
    The CivilianBy admin
    1 week ago
  • Will Horizons act on climate change?
    Local body elections are coming up next month. And it looks like all Palmerston North candidates for Horizons (the Manawatu-Whanganui Regional Council) want to take action on climate change:Climate change is set to be a key issue in Palmerston North for the next three years if those wanting to get ...
    No Right TurnBy Idiot/Savant
    1 week ago
  • BORA reform is stalled
    Eighteen months ago, the government promised to strengthen the Bill of Rights Act, by explicitly affirming the power of the courts to issue declarations of inconsistency and requiring Parliament to formally respond to them. So how's that going? I was curious, so I asked for all advice about the proposal. ...
    No Right TurnBy Idiot/Savant
    1 week ago
  • Corbyn and Brexit
    As the Brexit saga staggers on, the focus is naturally enough on the Prime Minister and his attempts to achieve Brexit “do or die”. But the role played by the Leader of the Opposition is of almost equal interest and complexity. The first problem for Jeremy Corbyn is that he ...
    Bryan GouldBy Bryan Gould
    1 week ago
  • A ditch for him to die in
    Last week, English Prime Minister Boris Johnson boldly declared that he would rather die be dead in a ditch than delay Brexit. Unfortunately for him, the UK parliament accepted the challenge, and promptly dug one for him. The "rebellion bill" requires him to ask for and secure yet another temporary ...
    No Right TurnBy Idiot/Savant
    1 week ago
  • Warning! Warning! Danger Jacinda Ardern! Danger Marama Davidson! Warning!
    Lost In Political Space: The most important takeaway from this latest Labour sexual assault scandal, which (if I may paraphrase Nixon’s White House counsel’s, John Dean’s, infamous description of Watergate) is “growing like a cancer” on the premiership, is the Labour Party organisation’s extraordinary professional paralysis in the face of ...
    1 week ago
  • Union solidarity with Ihumatao land occupation
    by Daphna Whitmore Every Sunday for the past two months unionists from First Union, with supporters from other unions, have set out to the Ihumatao land protest, put up gazebos and gas barbeques, and cooked food for a few hundred locals and supporters who have come from across the country. ...
    RedlineBy Daphna
    1 week ago
  • Climate Change: The wrong kind of trees?
    Newsroom today has an excellent, in-depth article on pine trees as carbon sinks. The TL;DR is that pine is really good at soaking up carbon, but people prefer far-less efficient native forests instead. Which is understandable, but there's two problems: firstly, we've pissed about so long on this problem that ...
    No Right TurnBy Idiot/Savant
    1 week ago
  • No freedom of speech in Turkey
    Canan Kaftancioglu is a Turkish politician and member of the opposition Republican People's Party (CHP). Like most modern politicians, she tweets, and uses the platform to criticise the Turkish government. She has criticised them over the death of a 14-year-old boy who was hit by a tear gas grenade during ...
    No Right TurnBy Idiot/Savant
    1 week ago
  • Speaker: Tadhg Stopford: Why I’m standing for the ADHB
    Hi there, just call me Tim.We face tough problems, and I’d like to help, because there are solutions.An Auckand District Health Board member has nominated me for as a candidate for the ADHB, because her MS-related pain and fatigue is reduced with hemp products from Rotorua.  Nothing else helped her. If I ...
    1 week ago
  • Good little vassals
    The Inspector-General of Intelligence and Security has published their report on whether the SIS and GCSB had any complicity in American torture. And its damning. The pull quote is this:The Inquiry found both agencies, but to a much greater degree, the NZSIS, received many intelligence reports obtained from detainees who, ...
    No Right TurnBy Idiot/Savant
    1 week ago
  • Who Shall We Turn To When God, And Uncle Sam, Cease To Defend New Zealand?
    Bewhiskered Cassandra? Professor Hugh White’s chilling suggestion, advanced to select collections of academic, military and diplomatic Kiwi experts over the course of the past week, is that the assumptions upon which Australia and New Zealand have built their foreign affairs and defence policies for practically their entire histories – are ...
    1 week ago
  • The Politics of Opposition
    For most of the time I was a British MP, my party was out of government – these were the Thatcher years, when it was hard for anyone else to get a look-in. As a front-bencher and shadow minister, I became familiar with the strategies required in a parliamentary democracy ...
    Bryan GouldBy Bryan Gould
    1 week ago
  • More expert comments on the Canadian fluoride-IQ paper
    The Green et al (2019) fluoride/IQ is certainly controversial – as would be expected from its subject (see If at first you don’t succeed . . . statistical manipulation might help and Politics of science – making a silk purse out of a sow’s ear). Anti-fluoride campaigners have been actively promoting it ...
    1 week ago
  • The return to guerrilla war in Colombia
    by Gearóid Ó Loingsigh On August 29th a video in which veteran FARC (Revolutionary Armed Forces of Colombia) commander Iván Márquez announced that they had taken up arms again was released. There was no delay in the reaction to it, from longtime Liberal Party figure and former president Uribe, for ...
    RedlineBy Admin
    2 weeks ago
  • Air New Zealand identifies this enormous plot of unused land as possible second airport site
    Air New Zealand couldn’t believe its luck that this seemingly ideal piece of real estate had so far gone entirely unnoticed. Air New Zealand’s search for a site to build a second Auckland Airport may have made a breakthrough this afternoon, after employees scanning Google satellite imagery spotted a huge, ...
    The CivilianBy admin
    2 weeks ago
  • Redline on the Labour Party
    No-one on the anti-capitalist left in this country today puts forward a case that Labour is on the side of the working class.  There are certainly people who call themselves ‘socialist’ who do, but they are essentially liberals with vested interests in Labourism – often for career reasons. Nevertheless, there ...
    RedlineBy Admin
    2 weeks ago
  • New Fisk
    No Right TurnBy Idiot/Savant
    2 weeks ago
  • Labour’s failure
    When National was in government and fucking over the poor for the benefit of the rich, foodbanks were a growth industry. And now Labour is in charge, nothing has changed: A huge demand for emergency food parcels means the Auckland City Mission is struggling to prepare for the impending arrival ...
    No Right TurnBy Idiot/Savant
    2 weeks ago
  • Ardern attempts to vaccinate Clarke Gayford live on television to prove that it’s safe
    Gayford, pictured here on The Project, before things got wildly out of control. A bold public relations move by the Government to encourage parents to vaccinate their children has gone horribly wrong. Prime Minister Jacinda Ardern appeared on tonight’s episode of Three’s The Project, where the plan was for her ...
    The CivilianBy admin
    2 weeks ago
  • Has Mr. Whippy gone too far by parking on our front lawns?
    Mr. Whippy’s business model has driven it down a dark road of intimidation. Residents in major centres around the country are becoming disgruntled by the increasingly aggressive actions of purported ice cream company Mr. Whippy, who have taken to parking on people’s front lawns and doorsteps in a desperate attempt ...
    The CivilianBy admin
    2 weeks ago
  • Cleaning up the water
    Today the government released its Action Plan for Healthy Waterways, aimed at cleaning up our lakes and rivers. Its actually quite good. There will be protection for wetlands, better standards for swimming spots, a requirement for continuous improvement, and better standards for wastewater and stormwater. But most importantly, there's a ...
    No Right TurnBy Idiot/Savant
    2 weeks ago
  • Fronting up
    Today I appeared before the Environment Committee to give an oral submission on the Zero Carbon Bill. Over 1,500 people have asked to appear in person, so they've divided into subcommittees and are off touring the country, giving people a five minute slot each. The other submitters were a mixed ...
    No Right TurnBy Idiot/Savant
    2 weeks ago
  • Politics of science – making a silk purse out of a sow’s ear
    Anti-fluoride activists have some wealthy backers – they are erecting billboards misrepresenting the Canadian study on many New Zealand cities – and local authorities are ordering their removal because of their scaremongering. Many New Zealanders ...
    2 weeks ago

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