Ditching GST 'not the solution to rising food prices'

Friday, 11 March 2022

The Commerce Commission says those outside the big two retailers can’t compete on price, range and location.

Food prices are at an all-time high but removing GST is not the solution, one economist says.

Fruit and vegetable prices leapt 17 per cent, year-on-year, in February, driven by tomatoes, broccoli and iceberg lettuces, and grocery food prices were up 5.4 per cent.

Greg Cremen recently moved from London to Taranaki with his wife, Heather, after spending more than 30 years in the UK.

He said overall grocery prices were more expensive here, but he thought that was because the UK, and most of Europe, had no value-added tax (VAT) on food.

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Australia levies GST on some foods, including dairy products, spices, condiments, bread, fruit and vegetables, cereal, meat, and baby food.

“This is a tax that should definitely be removed. It is a regressive tax that punishes the less well-off in the country,” Cremen said.

Infometrics economist Brad Olsen says people will use more housing resources as supply increases.

But Infometrics senior economist Brad Olsen disagreed, and said removing the 15 per cent GST on food “would be a mistake”.

“It’d create distortions, more administration, and would require higher taxes somewhere else.”

He said New Zealand had one of the “cleanest” GST systems in the world, as it was only one rate and is broad-based, applying to most things.

“The reason we have GST on food is to allow us a simple, and broad-based, tax system that treats everything the same.

“If GST didn’t apply to certain things, things become trickier to price, and there’s more time and money spent on deciding if something does or doesn’t fit into the tax system.”

A lot of the questions around removing GST from food is “what’s the problem that needs to be solved?”, Olsen said.

“If the problem is that some people can’t afford enough quality food, then it’d be more efficient to give those people more money to buy the food, or have the government buy the food and give it to those people in need.”

Removing GST would lower the cost for everyone, including those who did not need help, and would bring additional complexities as the Government worked through what would count as GST exempt food.

“If it’s just food in general, that’d have to include the likes of restaurant food as well, and other businesses would rightly ask why one sector can go without paying a tax that all other sectors have to pay,” Olsen said.

Finance Minister Grant Robinson said there was no work underway looking at the removal of GST on items such as food.

Deloitte partner Allan Boullot said questions about removing GST from food came up from time to time.

“While it could be done, it is not the best response to high food prices and could have many unintended consequences and is not the best use of the Government’s limited funds,” he said.

“If GST was taken off food, then the revenue lost to the Government would either have to be made up elsewhere, or Government spending plans would have to suffer.”