Labour Party drops GST policy on food   Leave a comment

Labour has officially abandoned its policy to remove GST from fresh fruit and vegetables. See here:

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11190292

Anyone who has heard David Cunliffe speak on tax policy since he was appointed Labour’s leader should have seen this coming. He’s never really been a big supporter of the proposal so far as I’ve observed.

Some GST consultants might have held out hope the policy would go through for the sake of their own pockets. It certainly had potential to create some interesting work for lawyers and other advisors.

New Zealand’s approach of keeping exceptions to GST to as few as possible is undoubtedly preferable from a tax system design perspective. This decision by the Labour Party is good news for the country because it means our GST system will not lose some of its current efficiency. If fresh fruit and vegetables were exempt from GST a greater proportion of every dollar collected by the tax would be spent on administration and compliance.

Having said that, many countries have learnt to cope with exceptions for food and there are ways of achieving the policy outcomes Labour was seeking without creating an administration and compliance nightmare for taxpayers and the IRD. It’s certainly something we may have to consider should a future government be tempted to increase the GST rate further.

Iain

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