So the Labour Party has confirmed their policy to remove GST on “fresh fruit and vegetables”.
This is new ground for NZ’s GST policy and it will be interesting to watch the debate unfold as producers strive to get their products within the concessionary rate.
For my part, if there were tangible evidence the policy will benefit low-income households with consequential health benefits for the country then I think I could live with the added complexity it will undoubtedly bring.
However, two things concern me most.
1. Overseas experience suggests the retail price impact of a reduction in VAT tends to be short-lived. The UK reduced their VAT rate in November 2008 and while there was an immediate reduction in consumer prices the following month a UK Government report found by February 2009 prices had returned to their pre November 2008 levels. So who really benefits from a GST rate reduction? Some evidence at least suggests it won’t be consumers.
2. If we go down this path the precedent will be set for future governments to use GST rates as a lever to influence consumer behaviour. The ice will have been broken and lobby groups with the most influence will more easily persuade politicians of the merits in lower or even higher rates for different products. There’ll always be a public interest component which politicians could find hard to resist having succumbed this once.