An economist says policies to exempt food from GST are "not a great way" of helping lower-income Kiwis and that it would "do a lot more good" to just give people money.
Yesterday, deputy opposition leader Nicola Willis claimed Labour would be introducing GST-free fruit and vegetables as part of its yet-to-be-revealed election tax policies.
Meanwhile, te Pāti Māori has advocated going one step further in exempting all food sales from GST. It's a position the party has pushed since March last year, which it again affirmed in its election tax policy announcement yesterday.
1News' Dewi Preece gauges some of the pros and cons of axing GST on food.
In addition to removing GST, the party wanted to introduce a tax-free threshold of $30,000, two new top tax rates of 42% and 48%, and also introduce four new taxes — including a wealth tax, land banking tax and vacant house tax.
"Our vision is simple, yet profound: to shift the burden of tax from the poor to the wealthy and to restore fairness," co-leader Rawiri Waititi said yesterday.
New Zealand Initiative chief economist Eric Crampton told Breakfast that he thought the proposed new tax-free threshold could be part of a "coherent tax system".
Eric Crampton says you could "do a lot more good" by simply giving money to lower-income communities.
"You can run a coherent tax system with those kinds of exemptions," he said.
"You'd have to be careful to make sure the numbers stack up, but you can run a tax-free rate over the lower periods and then a progressive rate after that. That works well."
The New Zealand Initiative is a pro-market, and libertarian policy think tank.
Crampton soured on the idea of exempting food from GST, which he suggested had worked "very badly" in other countries it had been implemented.
"It's not a great way of helping the people that the policy is intended to help," he said.
"You could do a lot more good by simply increasing transfers to lower-income communities by about that amount rather than trying to take GST off of food."
The Government's Tax Working Group, which recommended introducing a capital gains tax, opposed exemptions from GST in 2019.
It wrote in its advice: "Removing GST from food and drink would provide a greater absolute benefit to higher income households than lower income households.
"It is a poorly targeted mechanism for improving progressivity because in absolute terms higher income households spend more on such goods than lower income households."
A Newshub-Reid Research poll found last year that an overwhelming number of New Zealanders, over 75%, supported removing GST from food.
Crampton said the changes also introduced complexity for businesses attempting to administer exemptions to GST.
"If you want it to make the overall tax system more progressive, I'd be looking more at changes in the income tax system rather than changing GST."
Complexity concerns 'red herring' - Ngarewa-Packer
Te Pāti Māori co-leader Debbie Ngarewa-Packer told Breakfast that concerns about the complexity of exempting certain products from GST were a "red herring" when there had been changes to the system before.
Debbie Ngarewa-Packer says the party's election tax policies, if implemented, would help "end poverty".
"Our belief is that we have a blanket approach in taking it off kai," she said.
"I think this sort of red herring that 'it's going to be too hard'.
"Well, actually, it's really, really hard dealing with the consequences of poverty now and the complex social issues that we're having."
She cited when GST had been increased by previous governments alongside changes to the corporate tax system.
"Do you remember when GST was 12.5%? And it happened seamlessly.
"It is exactly the same way we did it as the way we undo it. I don't believe that taking it off is as hard as putting it on was. We have done it two, three times in this nation."
The party co-leader said New Zealand had "some of the most radical unprecedented poverty we've ever seen" and that urgency was required in tax policy as a result.
"The critical aspect is getting kai on the table. Getting our whānau eating, having our elderly, all elderly, all whānau being able to afford to eat," she said.
"This was the easiest way for us to do something now."
She said the change would equate to distributing seven weeks of free kai for families.
"This is about making sure that we take the pain out of our family's lives now."
Te Pāti Māori have launched a petition pushing for GST removed from all food.
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