Today in Mana in front of a packed audience, Phil Goff announced the Labour policy of zero-rating GST on fresh fruit and veges once we become government next year. The reasons for this policy are two-fold:
- at 15%, GST is no longer a ‘low rate’ consumption tax. This regressive tax will now be at a level where it influences behaviour to the point where many people will be forced to make very difficult economic choices that have the potential to impact upon their health and well-being. We recognise this and want to ensure that fresh fruit and vegetables are affordable to all New Zealanders.
- NZ is now the 3rd fattest country in the world (behind US and Mexico). The cost to the tax payer and the health system of obesity-related disease is around $500m per year. It is time to do something about this.
In New Zealand, 75% of the people earn below the average income, and the cost of living is about to rise for everyone as a result of the increase in GST to 15%. With inflation forecast to be around 4.5% next year, the ability of many kiwis to survive the resulting increases in the cost of living is hugely concerning for us.
GST at 15% will increase the cost of all food, and I do not think it is acceptable that in our country fresh fruit and vegetables start to become luxury items as the increases in the cost of living forces people to make choices that are not in the best interests of the health of themselves and their family.
New Zealanders have to be able to afford to make choices around the type of food they fill their supermarket shopping trolley with. And fresh fruit and vege needs to be at the top of the shopping list, and therefore affordable. A University of Auckland medical school study shows that the price elasticity of healthy food is around 0.85 (i.e. for every 1% drop in price there is almost a 1% increase in purchase). So price mechanisms do work in influencing behaviour – both ways (its the main reason why the govt increased excise tax on tobacco earlier this year).
Let me give you a Napier example of how this policy will help many New Zealanders: the median income in Napier is $23,000. According to the government’s tax calculator, this will deliver an after GST benefit of $3.17 per week in the hand. If a family were to spend only $25 on fresh fruit and veges a week, the 15% GST on this mount is around $3.26. So the cost of the fruit and veges is $21.74 - and the rest is tax. We will put this tax back into the pockets of hard working Kiwis who will really struggle under the weight of increased GST.
If you are wealthy – really wealthy – and earn $1,000,000 per year, you will get about $1,000 in the hand per week extra under the Nat tax cuts on 1st October. In Napier, if you are on the median wage you get $3.17 in the hand per week extra after GST. That’s simply not fair. Labour removing GST from fresh fruit and vegetables is fair. And that is why we are doing it.
Clare, I would be obliged if you could point out the swear words I used.
It would be helpful to the rest of us in the blogosphere aspiring to rise to the heights parliamentary exchanges.
“It would be helpful to the rest of us in the blogosphere aspiring to rise to the heights parliamentary exchanges”
!!!!!! You kill me 
LOL
Dude, Mr W. Kerr is not welcome on this blog
BTW – we need daylight saving time
How many ppl in NZ earns $1 mil a year? Isn’t that a bit extreme?
However if you compare a person A earning $99k and a person B earning $33k, even after the tax cut, person A pays $23590 in tax, and person B pays 4795 in tax.
In another word, person A (maybe put extra effort to get qualification, work for extended hours) earns 3 times the income of person B, yet he/she has to pay nearly 5 times the tax. That’s fair?
Any why stop with fresh fruit and vegi? what’s wrong with frozen vegi? what’s wrong with fat free milk? Where do you stop?
Also don’t rich pricks spend more on fresh fruit and vegi? In the end the rich pricks get more out of this GST exemption?
I simply can’t make any sense out of it.
650 earn $1m or more a year. yes, it is a little extreme, but it shows the inequity of the cuts. $1m = $1,000 per week. They hardly need it.! re yr example of person A v Person B – never assume that just because someone doesn’t earn much that they don’t work hard.! Unlike the Nats tax cuts, the FF&V policy benefits everyone who buys FF&V. So all New Zealanders win.!
Very selective and misleading figures in this I feel.
If you earn $1,000,000 you get $900 in a tax cut minus GST (it’s $665.79 plus GST), but then you compare it to an amount plus GST which is the $3.17 (it’s $11.44 without GST).
Either compare $3.17 to $665.79 or $11.44 to $935.19
And I don’t believe the median wage in Napier is $23,000.
You know whats misleading – that someone on $1m will pay an extra $270 per week in GST and that someone on $23k will pay an extra $8.27 per week. This means that someone on a $1m will spend an extra $2100 per week. Don’t think so. Sorry can’t help you if you don’t believe. Napier – where I am based – has the lowest median income in NZ, which is an absolute travesty.
@ Dylan – Clearly not. Thanks for expanding.
Ok, so everyone against this idea is just going to pretend it isnt being done in Australia, and working?
Yes, that’s right Tracey, they are ostriches who are going to pretend that Australia doesn’t exist even as record numbers of NZ’ers move there.
Who would have thought that the idea of making fresh fruit and vege less expensive for average kiwis would be so repugnent to Nact supporters.
It just shows what type of people the true nact supporters are.
@tracy, National has a plan, all those kiwis who want gst off fruit and veges can move to Aussie to get it. There plan is working very well so far with record numbers abandoning NZ under national.
Yeah I know – it astounds me.!!! There is really no downside – more affordable, healthier food, therefore healthier people (remember obesity-related diseases cost us over $500m per year). WHo wouldn’t want that.???
waterboy, let them leave, they will be happier there
DST – otherwise we will be in a parallel dimension one hour behind!
There could be problems 
…
If your definition of working is that it exists…
Tracey – I heard OZ distinguish between processed and non processed food, I also heard they have a lot of trouble with it. It’s working – but with ongoing problems. In the end Michael Cull called it a “very bad policy”.
Also I heard tampons are GST exempt in OZ because of women groups protested. I also heard various groups try to get their pet products off GST as well. The proposal will simply open a can of worms.
If doing the right thing opens a can of worms so be it, far better than having a simple but very wrong system.
163 comments Stuart. Very impressive. We need to hear more from you.
australia aren’t ahead of NZ because they have don’t have g.s.t on fruit/vegetables that’s why NACT doesn’t care
I’m not against this idea as such, I’m just not sure how workable it is…
ie Does the grower take off GST for buying fert, seed and everything else to grow the produce?
does the transport company take GST of diesel, repairs and everything else to transport the produce?
Or is it that the supermarkets get to drop GST (and then probably raise prices by 10% anyway) and make even more profit then they are now…
Only zero-rated at the retailer end. We did check this out with the tax and business experts. Zero rated means that you can still claim back your input costs: exempt means you can’t (very simply..)
Dylan – we have the better country though
There’s is just run better – good ol’ Labour 
Help!
I’m still stuck in a time warp! 
Ok, so if it’s hard we wont do it? ALL tax measures are hard, ask tax lawyers who are paid millions to find holes and drive their clients through them.
It’s a cop out. Everything can be legislated for. As for tampons being exempt, so speaks a man. My mother used to say if men had periods there would be a cure and the product associated would be subsidised.
Think what a household with 2 or more women (of menstrual age) spend monthly on associated product, including paracetamol.
@Chris73: none of these things are an issue at all, because Labour is proposing that GST on Fruit and Veg is zero-rated (like exported goods) not excluded from GST as such. So inputs to the business can still get GST refunded.
‘Zero rated means that you can still claim back your input costs’ Great so theres practically a 15% subsidy to the retailer involved. Definitely should have mentioned that earlier.
The final consumer has always paid the GST, it gets passed on at each level…
How can a retailer claim back G.S.T when they never paid their first lot… it’s like a kind of subsidy or at least removing G.S.T on all costs of production associated with retailers aswell. The retailers won’t have to pay G.S.T while receiving the benefit’s of increased demand with the same revenue for each good sold. The retailers are going win on this big time.
Note:
GST is up, but the real effect is a while off,6 or 7 months down the line, business don’t like lower profit margins.
And cost of production will go up and people will soon start to grumble and may even demand higher wage, more pressure on inflation, therefore I say prices are mostly likely to go wat up, despite the talk of market competition etc…
Take a guess who will make the biggest hikes on margins?
So lets wait and see what the price of FFV is in 6 or 7 months time. You guys @ labour might of been a bit quick in setting up this policy.
DST time please
Misguided .. totally misguided and arbitrary this idea of fruit and veges exemption. Actually not a vote winner I’m afraid to say.
For once, and maybe only once, I agree with ..
the MAXIM INSTITUTE!!
These are curious times. Must be the earthquake.
http://www.scoop.co.nz/stories/PO1009/S00333/gst-change-would-be-a-backwards-step.htm
GST Change Would Be a Backwards Step
Monday, 27 September 2010, 3:31 pm
Press Release: Maxim Institute
GST Change Would Be a Backwards Step
“Labour’s new policy of exempting fresh fruit and vegetables from GST would make our tax system more complex and less efficient, and would cost us $250 million that we do not have,” says Steve Thomas, Researcher at Maxim Institute.
“A clear, single GST rate on all goods and services gives us that clean system we need. Introducing exemptions creates more mess and complexity, which inevitably bumps up the amount of money wasted on administering the system,” argues Thomas. “Both the Tax Working Group and the 2025 Taskforce were careful to say that exemptions on GST should not be introduced, with the 2025 Taskforce declaring that our comprehensive collection of GST is ‘widely-admired.’ We need to attend to their advice.”
“From a practical perspective, exempting fruit and vegetables from the GST system is also fairly arbitrary. By privileging one particular “good” and singling it out for exemption you are, by default, presuming those other things to be of less value. Why not exempt running shoes? Why not exempt doctors visits?” asks Thomas.
“Tax is about the government collecting what it needs from the public to do its business,” says Thomas. “The more efficiently and simply the government can collect tax, the better. We ought to retain a clear, single GST rate on all goods and services.”
ENDS
You know, the way the debate has gone on (including the post above) one could assume that this would be the very first time anything had received a zero-rating status. Quite wrong. If one checked the IRD website one would see that there already are a variety of items that can be zero-rated. Peter, you may end up a little disappointed if you quote the Maxim institute and then expect to be taken seriously. They are hardly ‘independent’ or even credible.
A few questions on the “No GST on fresh fruit and vege” which is prewsumably intended to suggest a reduction in price of same.
Q1. On frsh fruit and vege there is no actual material cost so the majority of their cost is the cost of labour which is involved in each and every stage from planing to final consumer sale. It would seem that if a Labour Government increase minumum wage from around $13 to $15 then foods that require labour to grow, harvest, pick, bring to market, offer for sale would all increase in price by at least the increase in the cist of labour right? Therfore increasing labour rate would have an immediate pricing increase in fresh fruit and veg. Has this been calcuated yet? What effect will increasing labour rate have on price of fresh fruit and vege?
Q2. Are we to assume that by removing the GST on these foods that their price will automatically drop by 15% in their pricing? Really? Aren’t these foods sold at market where buyers bid for supply and removal of GST would little or no benefit in pricing after the first month or so their price will return plus increase by the additional cost of the labour that is a large component in their pricing? Is there any evidence that removal of GST on fresh fruit and vege will have any effect on price?
Q3. Removel of GST will create additional software and administration cost which will in turn be passed on to the consumber. Would it not be far more effective to allow consumers to simply file a GST return and claim back the GST on fresh fruit and vege without removeing it from the supply chain which may or more likely may not reduce pricing?