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Exemption for food scuttled

The Government has quickly moved to veto any chance of the proposed GST exemption for healthy food from reaching our dining tables.

Just two reasons given that I noticed.

1. Once we start exempting some items where do we stop?
2. The compliance costs would outweigh the benefits.

My responses are:

1. Fair enough. Setting a precedent is a political consideration. But if it’s a good thing to do for health reasons does the precedent really matter? Shouldn’t we be more concerned about making the right decision than trying to avoid arguments over issues which haven’t even been raised yet?

Besides, there are already precedents – residential rental accommodation, some sales by non-profit entities, financial services and certain fine metals are exempt from GST. The debate so far from the supporters of the Bill has focussed on the potential health benefits for New Zealanders. They haven’t argued food should be exempted because other items are already exempted. So let’s keep the debate at that level.

2. True, if some food is exempt from GST it could get very complicated for businesses selling food. Complexity means extra cost and this just gets passed on to the consumer which could negate the price decrease.

But there’s a big difference between “exempting” food from GST and “zero rating”. The Maori Party proposal is to “exempt” food. I agree that’s too complicated. But a lower GST rate or even a zero GST rate is a better way to go and would be much simpler for businesses. There could be real savings.

Where there will be some complexity would be around the definitions of what is “healthy food” and what isn’t. There could be court cases about this. Nearly every VAT/GST system in the world has reduced rates for basic food items so there’s plenty of experience for us to benefit from when it comes to wording the definitions. They’ve already had many of the arguments. We could use that experience.

Besides, I think with some tight legislative drafting and careful thought we could do a pretty good job.

Frankly, the two main opposing arguments raised so far aren’t good enough for me to conclude it’s a bad thing to do. We need to have a better debate about whether reduced GST on some foods would produce the health benefits claimed, what the costs might be compared to other ways we could attack this issue and what the scope of the definitions might look like.

More to come……………..

Iain

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