Often a policy seems good in principle but is poor in practice.
Such is the matter of exempting GST for food. Every few months someone claims this 15% impost should be removed.
Te Pati Maori called for it to be eliminated after the last Budget. Calls have continued this year as inflation bites and food prices soar.
The matter has also come up in the wake of the quickly dumped plan to add GST to KiwiSaver and managed funds’ fees.
Labour campaigned in 2011 for fresh fruit and vegetables to be GST-free. Six years later, New Zealand First said GST should be removed from "basic food items".
A Newshub Reid Research poll has found that 76% of New Zealanders backed taking GST off food.
The arguments are superficially seductive. The poor spend a higher proportion of their income on food. Cost of living increases could be ameliorated. Healthy eating could be encouraged.
Other countries, including Australia and Ireland, exempt many foods and drinks. So why doesn’t New Zealand?
As it happens, those countries highlight ingredients which make a GST food exemption foolish.
Although it might not always seem that way, New Zealand has a relatively straightforward tax system. This minimises the heavy costs of administration — for individuals, businesses and government itself. This also makes tax evasion and avoidance less common, because compliance is less complicated.
There are fewer loopholes and grey areas. The knowledgeable and those with smart lawyers are not at quite the same advantage. Even the affluent who have the means to reduce their taxable income end up paying GST on the likes of expensive cars.
Take Australia, where GST is 10% and some food is excepted. Its Taxation Office has various headings on "definition of food, GST in the food supply chain, GST-free food, taxable food, mixed GST status, marketing food, definition of premises, food packaging, GST food classification flow charts".
There are issues on what foods and beverages (including water) are for human consumption, whether they need processing or treatment, on ingredients, on goods to be mixed with or added to food including condiments, spices, seasonings, sweetening agents or flavourings, as well as fats and oils for culinary purposes and "any combination of the above".
And on it goes. The picture is clear that the subject is complicated. Businesses adapt and learn what they need to, despite the costs, effort and potential confusion — because they have no choice.
An economics lecturer at the University of Canterbury, Stephen Hickson, has written that in Australia whether "oven-baked Italian flatbread is a bread (so not subject to GST) or a cracker (subject to GST) went to court and involved flying a bread-certification expert from Italy to testify".
In Ireland, the courts had to decide if Subway was serving "bread" or "confectionery or fancy baked goods" because of GST differences.
In Britain, GST food guidelines are 40 pages long with 130 example categories. In Australia, 1500 food types are outlined across 87 pages.
If GST is only excluded for healthy or unprocessed foods, how are they defined? If milk is considered healthy, what about its impact on the environment? What about milk powder?
If taken off all food, including sugar, then one presumes caviar would be exempt. If off "basic food", how would that be defined? And what about GST on basics like toilet paper or menstrual products?
If off fresh fruit and vegetables, perhaps the exotic and expensive could be exempt while New Zealand frozen peas would be taxed. Anyway, it is the wealthy who, overall, buy more healthy foods.
As the 2018 Tax Working Group said, such GST exemptions lead to "complex and often arbitrary boundaries" and would be a "poorly targeted instrument for achieving distributional aims".
Government income from GST on food amounts to $3 billion to $4 billion, money that would have to be found elsewhere.
It is far better to avoid difficult minefields and enriching tax lawyers. It is more practical to help poor households through other tax and income support means.
