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GST exemption for healthy food

The proposal from Maori MP Rahui Katene to exempt healthy food from GST was turned down by Parliament last night. The Bill won’t even make its way to the Select Committee where public debate could have occurred.

I think that’s a shame. It would have been useful to have a decent debate on this. It’s pretty easy to write off proposals like this on the grounds of the extra complexity they create for our apparently “simple” GST system or because they sully the purity of that system. Debate at that level is simplistic and shallow.

What was needed was substance and depth of research about the experience of the vast majortiy of countries which already treat fresh food differently under their GST/VAT systems. Surely that can’t be hard.

Is there evidence consumers’ spending and eating habits have been altered by the rate of tax applied to certain types of food?

I don’t know what that research would show. I do know there is plenty of evidence suggesting high excise taxes have had an impact on tobacco consumption. In my view the debate should be about whether any good could come out of a lower rate or exemption from GST for certain foods. If there’s a demonstrable social or economic benefit then let’s weigh that against the undoubted costs of added complexity and loss of purity and then decide whether we want to go down that road.

I’m a little disappointed with how this propoasal has been treated. I really thought the days of summarily dismissing policies in this country on solely ideological grounds (and let’s face it that’s exactly what’s happened here) were gone. Apparently not.

Recently a visiting tax expert, Chas Roy-Chowdhury, Head of Tax for the Association of Certified Chartered Accountants in the UK, predicted there will be ongoing pressure on NZ to continue increasing GST. Certainly when you look around the world it seems governments everywhere are moving more and more towards consumption based indirect taxes like VAT/GST. They have many advantages over income tax.

New Zealand has probably the highest GST/VAT rate on food anywhere in the world. Sooner or later we’re going to have to have a full debate on this and my prediction is it will not be politically possible for another across the board GST rate rise in New Zealand. The pressure to look at lower rates for some goods and services will be considerable as will the pressure to have higher rates for others. Governments elsewhere use VAT/GST as an economic lever. One day our Government will cotton on.

Iain

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