GST on Food
Taking GST off food is the topic de jour of the week, with both Labour and National now commenting on it. So let’s open up a discussion about it here too.
My thoughts are that the benefits are:
- It is a simple, pragmatic response to a specific problem (rising food prices).
- It could possibly be targeted to promote foods that are good for our health and the environment (fruit and veges).
- And best of all it would be an attack on GST which is a regressive tax which, on average, taxes our least well off the most and our wealthiest the least.
However the negatives are:
- There are significant compliance costs for anyone selling food products.
- It’s hard to develop a graded GST system without grey areas. E.g. Should the following foods be in or out; fast food, imported luxury items, stuff nutritionalists say we already eat too much off such as dairy and fats?
- Do we have any evidence that the tax cut will reach people who need it? Will consumers get the benefit? Will people in poverty get the benefit?
- If the cause is climate change, poorly conceived biofuels, a food supply system over which we have no local control and changing cultural and eating habits around the world, can removing a 12.5% tax going be the solution?
I can’t see the underlying causes of food price rises going away so GST on food is likely to remain a part of our political debate for the remainder of the election.
Bookmark to:
April 29th, 2008 at 8:50 am
The answer is simple.
Reduce GST to 0 an all goods and service transactions.
It is a bad tax for the reason that as the price of goods and services increases so does the GST take.
How much moeny does the government need to take from us only to have to return it somehow through tax cuts, welfare for families, etc. so that Joe bloggs can survive on his take home pay?
Would it not be better not to collect the money in the first place?
A far more important equation that should worry will be drop off in the volume of taxation now being gathered as the country heads for a recession.
The ratio of tax payers to tax recipients is getting way out of kilter and a 1980’s style reform is just around the corner. Where state spending will need a huge cut, as funding for it from a dwindling tax base makes it impossible for the unproductive state spending to continue.
How much silver is left in the New Zealand cupboard to sell if future governments (be it Labour or National led) cannot bring about a wholesale change in the volume of taxation versus spending.
April 29th, 2008 at 10:56 am
Gerrit
IMHO that is the wrong way to go, raise GST to 15% on everything, change the tax rules so everybody pays (remove the loopholes that let those with smart accountants pay no or little tax) and introduce low flat tax rates.
Tax on what you spend not on what you earn.
April 29th, 2008 at 10:58 am
Why not examine the duopoly. I would like to know how much profit that the two supermarkets are making on basic foodstuffs what are a necessity of life just like Oxygen and Dihydrogen Oxide.
April 29th, 2008 at 11:56 am
BB,
Either way I dont mind. But they have to do something to prevent a 1980’s like “correction”.
State spending needs to be bought under control, tax take minimalised, the ratio of tax payers to tax recipients to be balanced, etc.
Increasing the GST however hurts the low income people the most as price rises incur the extra GST tax. The higher the prices, the higher the GST take.
it is a myth that smart accountants can pay none or little tax. The only way you can minimse the tax is to reinvest your earnings back into the business. Someting I have been doing since incention and as a consequence have paid no tax.
While drawings from the business are negative tax geared as the business pays back the start up money lent to it (plus interest). Should take about 10 years.
Run another business on the side (such as a rental property) that suffers a loss (got to love those interest rate hikes) and your tax libilty (quite rightly) is very low.
Tuatara, The only reason supermarkets make a prfit is because people spend their money there. Shop at independent shops and you’ll see the profit dry up.
April 29th, 2008 at 12:26 pm
Gerrit
We also need to see the gab between benefits and wages grow, if that means a cut in benefits then so be it.
April 29th, 2008 at 12:39 pm
You’re half right there, BB, NZ is a far too low wage economy, and we need better paying jobs. We just lack the business people to make it a reality.
On the topic of GST on food, I think that GST is an excellent tax system, as it essentially charges consumers when they spend. The more you spend, the more tax you pay. Simple.
And as for the duopoly - I’ve got the solution for that - do an electricity on them, so the distribution chains and retailers are split. That allows more retailers to enter the market, and provides competition at the distribution level.
April 29th, 2008 at 2:26 pm
BB,
Dont hold out much hope for that with the current or any future National government.
Wages can only grow with productivity increases. Benefits cant go any lower without major civil disturbance.
dbuckley, That is a simple solution but in the case of supermarkets, not to practical.
The electrical system was easy (as was telecom and auckland airport) because the owners could not very well disband the infastructure. (wires and concrete in the ground)
Supermarkets are easy to disband (not the buildings) as the infastructure such as shelves, freezers, cash registers, counters, truck fleet,etc. are easily portable back to Australia.
You could imagine the scenario where the government splits the distribution chain. Supermarkets could easily up stakes (most of them lease building - they dont own them) and close their operations down.
The govenment would then be in a situation of having to fund new capital infastructure and start a state supermarket chain.
Ho much money does cullen have?
April 29th, 2008 at 2:39 pm
as previously noted by yours truly gst is not regressive but might even be mildly progressive
http://blog.greens.org.nz/index.php/2008/02/07/tv3-poll-3/
establishing exemptions from gst only introduces complexity into the tax system, all that red tape that “the business community” complains of would be increased - and for what? to slightly increase the real income of the poorest people? it would be better to handle this goal in a more direct manner, simply through a handout
April 29th, 2008 at 2:47 pm
that’s not a bad thing, it maintains proportionality between the overall economy & the government sector - just like all other taxes - as income rises, the income tax take increases… etc
supermarkets already have distribution chains & retailers split. individual supermarkets are independently owned & simply have a franchise agreement with the chain. even wholesale warehouses within the franchise are often independently owned
April 29th, 2008 at 5:20 pm
I have an even better idea than BB on how to get rid of income taxes. Fund the government completely through fines. Those like Jeffrey Archer and Donna Awatere, given that they love money so much, would be much better deterred form crime by a substantial fine rather than a prison sentence. Lets fine all non-violent criminals and keep jail for violent crime. The fine could be proportional to their discretionary income and the seriousness of the crime. Speeding fines are already a source of revenue, and I see nothing wrong with that. I actually found a very good way of avoiding speeding fines - I stopped speeding.
This would both increase government revenue and mean less spending on prisons. Personal income tax and GST could be substantially reduced as a result.
OF course one negative result may be that once our entire government revenue is based on crime, the government will be reluctant to take any measures to prevent it and may instead encourage more of it.
April 29th, 2008 at 5:51 pm
the same problem applying to taxing “bads”.
what happens when the policy works & the bads/crime decrease? then having set up taxation as a punishment, the revnue-starved government must go back to applying it to goods as well.
perhaps the taxation of bads, & criminal fines, can be kept entirely separate from other government revenues & expenditures, used to fund only measures which can be painlessly dispensed with as soon as the revenue shrinks (lottery prizes perhaps?)
April 29th, 2008 at 7:36 pm
I agree, except I would set GST to at least 20%, and drop income tax significantly. This would mean there was a much greater incentive for people to earn more: if they paid less tax on income there would be a real benefit for people to avoid being on benefits.
This would encourage productivity; the kind of productivity that benefits families and individuals, as well as the kind of productivity which benefits employers (which doesn’t always benefit individuals)
It would also mean that people who wanted/needed to save had more money to do so.
The real problem with this discussion about gst on food is that removing gst would only be tinkering with tiddlywinks. The factors which govern the prices of food are so much bigger than local considerations that 10% either way is chicken feed.
Take a look at the dairy price issue…why are butter and cheese so expensive?? Because Fonterra gets a much better income by supplying a much larger market overseas. Bulk markets rule.
Have a think about how small NZ is compared to India and China, and you will realise that in the not-too-distant-future every NZ primary producer could export every kilo they produce and get much better prices than locally.
The high prices are here to stay, and no amount of moaning or gst-fiddling will remove the basic drivers of high prices.
Grow a garden, eat less, eat healthier foods and not takeaways, and most people will get by ok, just like our grandparents did.
April 29th, 2008 at 8:55 pm
It would appear illogical for the Green Party to advocate for removing GST on food due to high food prices while simultaneously arguing against removing the fuel excise tax in the face of high oil prices.
For the record I think those people advocating for increased GST and reduced income tax are bang on because of the following reasons:
- Highly efficient to collect
- Mildly progressive
- Hits tourists (who have high infrastructure demands), where income tax hits locals
- Does not affect the cost of exporting (I think?!?)
- Discourages consumption and thereby encourages environmental efficiencies
April 29th, 2008 at 10:12 pm
As a beneficiary - sole parent with two young children - this subject interests me very much, as do the comments I’ve read on this blog. It concerns me that a couple of respondents make generalisations about beneficiaries without taking into account the diverse range of peoples and situations covered by this label. My option to avoiding being on a benefit would have been either staying in an environment that was detrimental to my babies, or handing their care over to strangers while I worked.
As to removing GST on food, I would welcome some relief to my food bill. Greengeek suggests eating healthier food is cheaper? Half of my shopping trolley is fruit and veges - and now that I’m paying almost $5 for a bag of apples, it’s not cheap. Bread is another hiccup. If I choose wholegrain bread, I am paying $3-4 per loaf, compared to budget bread which is less than $2. Added to that, sausages, beef patties, all processed meats, are cheaper that fresh meat. A box of Soho rice crackers is more than a large bag of potato chips …… etc! I am resisting taking the less healthy, cheaper options thus far, but if I’m to continue feeding my children well, I need some kind of break.
I don’t have all the facts and figures, knowledge of monetary policy, or a particular talent for debate - what I do have is increasing living costs on a budget already tightened to strangle point, and therefore welcome government initiative to remove GST from food.
April 29th, 2008 at 10:53 pm
Barking Rabbit,
I suspect many of the replies to this topic are from people on sufficiently high incomes that they would benefit monetarily from increased GST and reduced income tax. GST is in fact a regressive tax, because someone on a low income is forced to spend a larger portion of their income on goods (e.g. food), and thus end up spending a higher _proportion_ of their income on GST than someone on a higher income who has money left over to invest (for example).
Whatever … removing GST on food will only provide a one off reduction in food prices. It won’t address the underlying causes of the problem.
April 30th, 2008 at 1:16 am
the purpose of making an investment is not that holding an investment improves the quality of life of the investor in itself… it’s to yeild a return on investment, which the investor can ultimately spend on consumption.
if the rich are better able to invest a portion of their income, that then disproportionately increases their ultimate expenditure on consumption.
therefore gst is a progressive tax.
barking rabbit - if removing gst reduces your food expenditure by $x, it would be better to simply increase your benefit by $x - this would cost the government and businesses less to administer.
& if they give you an $x gst reduction now to compensate for an $x increase in food prices, what are they going to do in a years time when food prices have again gone up by $x? no, the direct solution is the best. poor people not having enough money because food prices have increased? give them more money
April 30th, 2008 at 4:07 am
Gee I wish I was as smart as Michael Cullen. He says tax cuts are inflationary. Therefore removing GST from food will inflate food prices. Therefore bb’s proposal to increase GST on food will lead to a drop in food prices. Problem solved
April 30th, 2008 at 4:10 am
Should work with houses too
April 30th, 2008 at 8:56 am
Increase GST is a great idea.
Decrease Income Tax also a great idea.
The more you consume the more you get taxed.
The less you consume or reuse the less you get taxed.
Doesn’t the statement above sound like a green policy I wonder why the green party isn’t going for it.
April 30th, 2008 at 5:49 pm
Barking Rabbit says:
“Half of my shopping trolley is fruit and veges - and now that I’m paying almost $5 for a bag of apples, it’s not cheap. Bread is another hiccup. If I choose wholegrain bread, I am paying $3-4 per loaf, compared to budget bread which is less than $2. Added to that, sausages, beef patties, all processed meats, are cheaper that fresh meat. A box of Soho rice crackers is more than a large bag of potato chips …… etc! I am resisting taking the less healthy, cheaper options thus far, but if I’m to continue feeding my children well, I need some kind of break.”
Barkingrabbit, the situation you describe is quite common, but we don’t hear much about it in the media because most journalists are rich enough not to notice it.
It doesn’t make sense to try and deal with it by making food in general cheaper. It would be more worthwhile to focus specifically on making healthy food cheaper, and the compliance costs in exempting only healthy food from GST would be astronomical. I suspect some sort of targeted subsidy would be a more efficient way of doing it.
April 30th, 2008 at 6:42 pm
All sounds great to me, don’t forget a capital gains tax at the same rate as other income taxes. The only things exempt from GST should be taxes/rates.
Do these ideas rate as a left or a right wing?
April 30th, 2008 at 7:11 pm
samiam, left or right is not the issue. Strangely enough, given some of your previous posts, your suggestions tend to be rating closer to Green, which you need to accept is something different, but is more than just ecological sustainablilty.
April 30th, 2008 at 7:17 pm
kahikatea said: I suspect some sort of targeted subsidy would be a more efficient way of doing it.
Ah, a voice of reason. I find it strange that some of the calls for abolishing GST on food come from the same people who normally complain about compliance costs to business.
The easy way is to be directly transparent - identify healthy staple foods and foodstuffs that are expensive and directly subsidise them, while leaving the consumer to pay the full cost of junk food if that’s what they want.
April 30th, 2008 at 8:15 pm
Now your croaking toad!
Good froggy!
Neither left nor right, just Green!
Makes me all warm and fuzzy it does.
You’ll get my vote yet.
April 30th, 2008 at 9:03 pm
The main reason some people seem to support dropping gst on food is because they feel this will make life easier for beneficiaries and other poor. Personally I speak as someone who had to spend 6 months on a benefit (so I understand deprivation), and also 30 years in the paid workforce (so I understand the pain of paying taxes).
I have reached a point in my life where, for the last two years, I have been unable to afford to pay my living costs, unless I use my credit cards to get by.
The result is that my debt has continually increased, and I have to work my butt off to slow down the rate at which I am going financially downhill.
As a result I have never had as much time as I would have liked to spend with my kids, and therefore I have very little sympathy with your complaint that avoiding handing the care of your children to strangers necessitated choosing being on the benefit.
Taking the gst off food will require an increase in administration costs. It will not change in any way the total amount of tax needed to be spent on beneficiaries.
Why not?
Because the growers/suppliers of food will simply increase their prices, and/or ship their goods overseas as export markets continue to grow, thereby increasing the local prices too. People such as yourself will still need (and get) top-ups of your benefit wherever there is a shortfall.
Meanwhile, you probably don’t understand what our social welfare system has done to people like myself…(middle class, law-abiding, go-to-work-everyday kind of people). We have seen our effective take home pay drop hugely in real terms, while the social welfare system props up other peoples ‘human rights’.
It is time to get real and understand that the third world standards visible in Africa and India etc etc are the only true example of what ‘human rights’ really are. Human rights don’t in fact exist unless you can find someone else to make pay for them. Dropping gst on food simply gives someone like yourself an extra benefit at the expense of someone like me.
Time for NZ to wake up…if you think beneficiaries are hungry now, wait till the total effective tax-take drops over the next 10 years as taxpayers lose their ability to pay, or go overseas and you will see how much closer NZ gets to those third world conditions.
Yes, we would all love to get cheaper food, but clamouring for gst to be taken off food is really just another way for the poor to say “give me more of what you have”.
If you don’t grow your food yourself, then you will just have to pay whatever it costs to buy it from people who do. Digest that fact and you will have much more success in feeding yourself in the future, than if you simply demand that I should pay more tax so that you can pay less gst.
April 30th, 2008 at 9:22 pm
subsidies are problematic too, extra bureaucracy involved in trying to distinguish between food for export & food for domestic market to ensure only the latter is subsidized, whether to focus the subsidy only on the goal of feeding nzers & hence to subsidize product of foreign origin as well as local or whether to conflate that goal with other goals favouring domestic production, or favouring certain types of food.
subsidizing only healthy food for example might mean that healthy food becomes more affordable for moderately poor people while remaining unaffordable for very poor people.
the most efficient & straightforward solution is still to simply make a weekly benefit payment to anyone under a certain income, & increase that payment as the price of food increases.
that’s if we can convince people like greengeek that it’s worthwhile spending
April 30th, 2008 at 10:13 pm
greengeek Says: Meanwhile, you probably don’t understand what our social welfare system has done to people like myself…(middle class, law-abiding, go-to-work-everyday kind of people).
I don’t want to make this about personal situations, but once again generalisations and assumptions are being made due to a persons ‘beneficiary’ status. I spent fifteen years in the workforce (2yrs part, 13 full time) paying tax before I had my children. In comparison, I have been on a benefit for two and a half years (and will be ‘off it’ when my youngest turns five in 9 months), during which time, taking into account my ex husbands child support, and the family support payment working families get, my govt subsidised portion of the benefit has been less that $100 per week - considerably less than I paid in tax! I am law abiding - with a dad for a police sgt, I kinda have to be to keep the peace
(oh, and I’ve never claimed the ‘extra’s’ I am entitled to - dumb pride…..)
I’m not asking for more hand-outs. Just a solution to the problem all low income families are facing in making ends meet, and feeding our children well. Due to aforementioned pride, I would prefer this solution to be beneficial to all new zealanders, therefore still like the idea of GST removed from food.
May 1st, 2008 at 12:37 am
it’s not beneficial to all new zealanders. it stands to reason that someone must make up the shortfall in tax revenue, or that someone must suffer from decreased government services as the tax take dwindles.
it really is just a way to transfer wealth from richer to poorer people, which, notwithstanding objections from greengeek et al, might well be a good and fair thing to do. i’m just saying it’s not an efficient thing to do throughh a tax exemption, it is efficient to do it with a benefit payment
May 1st, 2008 at 2:17 am
I paid $3 for my tomatoes. The same amount for my brocolli and caulis and brussel sprouts. Plus a few dollars for some horse manure. Our water’s still free. Why bow down to a duoploly when you can have the pleasure of growing your own? I reckon it takes less time to weed the garden that to drive to the supermarket and queue at the checkout. Ok, so I trip chain so there’s not much travel time, but most people don’t. Or they didn’t before petrol got as expensive as a litre of coke.
May 1st, 2008 at 7:10 am
I didnt mean to be personal (except to point out that people in work have the same lifestyle and poverty dilemmas as those on benefits, often more so) and I commend you for the pride you refer to.
However, removing gst on food would not solve the problem. The wealthy would have more money in their pockets to spend (ie less gst paid on food). The tax-take would therefore drop. Therefore there would be less money to give to beneficiaries, so over time the real value of a given benefit payment would decline. Not only that, but if the wealthy and middleclass have more money available to spend on food they will buy more of it, so there will be less available for poor people to buy. If demand goes up, availability goes down, and prices rise.
Again…the real problem is that when people stop growing their own food they lose control of the price. They become dependent upon the vagaries of the world markets and economy.
eg: as petrol/oil becomes more expensive food prices will soar worldwide because it becomes more expensive to buy fertiliser, more expensive to run tractors, more expensive to transport to market.
Those same forces that push food prices up, make it harder for every NZ business to produce their products and ship them to market, whatever that product may be. The outcome of that is that the overall NZ tax-take declines and beneficiaries suffer again.
Fiddling with gst is a short-sighted and ultimately more damaging waste of time. The real answer to high food prices are various shades of the following:
1) Identify the fact that so many commodity prices are fundamentally founded upon our need for oil, and tied to the price for that oil. Find ways to break away from that reality!!
2) Force our farmers to produce ONLY for the local market so that there is no way we have to compete with international pricing. This sounds horribly like communism. It would be too damaging to contemplate doing this. However, maybe we could boost the availability of low-cost locally grown produce by getting prisoners to work their butts off producing food for the poor.
3) Teach people how to grow their own food.
4) Make public allotments available for communal food-growing. (Where else could an apartment dweller plant out a row of silverbeet and a herbgarden??)
5) Explain to beneficiaries that their income MUST be limited by (and significantly less than) the disposable incomes of middleclass working people. (sounds arrogant and heartless but it is true)
6) Limit the NZ population to a level where our food production potential significantly outstrips the demand/need for food. If we think food is expensive now, what will things be like when our population hits 6 million, or 10 million??
The real answers (and these are but a few…) have nothing to do with minor tampering with gst. The real answers come down to efforts by individuals to reshape their lives. If you are not reshaping your own life so as to reduce your dependence on world markets, and corporate products, then you will either go hungry, cold and wet, or else have to join the queue of people demanding to be given more, which ultimately has to be taken from someone elses efforts.
May 1st, 2008 at 8:44 am
Greengeek - That Post above is probably the best one i have ever read on this blog. I agree with everything you said well done.