Editorial: GST backtrack

After spending more than two decades assiduously defending the integrity of the GST system it originally introduced, Labour has back-pedalled with its promise to scrap the tax on fresh fruit and vegetables.

Party leader Phil Goff announced this policy just ahead of Friday's tax changes, which include the rise in GST to 15 per cent, and there was an obvious political motivation. Still trailing National in opinion polls and unwilling to commit itself to reversing the GST increase, Labour's pledge to remove it from fresh fruit and vegetables is a blatant pitch to low and mid-income families.

What Labour proposes is not as far-reaching as the Maori Party bill, which would have removed all "healthy" food from the GST regime but was tossed out of Parliament earlier this year. That bill would have been totally unworkable and have hugely increased compliance costs for retailers. For example, it would have exempted lean meat and milk but not other meat or flavoured milk.

Despite Labour claims to the contrary, retailers have rightly warned that making fresh fruit and vegetables exempt would still compromise the simplicity of the system, which was one of its greatest virtues. This will inevitably lead to added compliance costs for many businesses and, in terms of monitoring or administering the GST change, for the government as well.

The benefit accruing to families, which Labour puts at $6 a week and National at just $1 a week, must be offset against the hidden compliance costs and the lost tax revenue of around $250 million a year.

And having set the precedent of making one group of food items exempt, a future Labour administration would find it more difficult to resist calls to remove GST from other products. There may be pressure to exempt vegetables which have been immediately snap-frozen after picking.

Then undoubtedly products such as milk, eggs, fish and cheese would be on the wish-list of some health or budget-planning groups and a case might even be made for running shoes.

This would be the sort of slippery slope which leads to the administrative and compliance complexities and absurdities found in other nations with GST-type systems that do have, usually for political reasons, reduced rates or total exemptions for healthy or basic household foods and products.

There is no question that healthy eating should be encouraged. Health Ministry figures have revealed that one quarter of New Zealand children are overweight or obese by the time they start school. A recent international report also said this nation ranked third in the developed world in terms of overweight and obese people, which will have major implications for the health budget in coming years.

Even if Labour's proposal did increase the consumption of fresh fruit and vegetables, this is not a sound way of promoting healthy eating, as it would add a new layer of complexity to one of the world's most admired and simplest indirect tax systems.

Rather than increase the costs to retailers, the Government focus, especially in post-quake Canterbury where employment losses are likely, should be on providing an economic environment which fosters job and income growth. This is a preferable way to ensure that fruit, vegetables and other healthy foods are affordable.

The Press