Removing GST from food is back on the political agenda thanks to Winston Peters’ announcement yesterday.
Recent calls for GST free food have focussed on the health aspects. This doesn’t seem to be a prime motivator for NZ First but it does appear the policy would not extend to removing GST from fizzy drinks and some other sugary foods.
NZ First’s stated objective is to lower the cost of food for low income households.
Voters need more information on this. Overseas research I’ve seen suggests removing tax on food has an immediate downward impact on prices but it is shortlived. Within several months prices tend to move back close to the levels they were at when the tax applied.
Also, those who benefit most from removing GST on food are those who spend the most, a bigger subsidy for high income households.
Then there are the compliance complexities of different GST rates for different types of food. The overall costs to government (taxpayers) of collecting GST will go up. GST will become less efficient and tax advisors will be busier.
Overall I think there are probably more effective ways to provide relief for low income households but it’s a good debate to have given New Zealand’s comparatively high GST rate on food.