Food affordability has long been an issue in New Zealand. One option to cut the cost would be to follow other countries and remove GST but would that work in New Zealand?

The model of having virtually no tax on food and beverages, as is the case in the UK and Europe, would not work so well in New Zealand, said Deloitte tax partner Allan Bullot.

"The real problem we have with taking GST off of something like food is - and it's not impossible to do - it's a political decision as to what food you take it off," Bullot said. "We could do the same here, but the question that comes back is; if you do the same here, where are you going to get that extra money?"

The removal of GST on food and beverages would mean increases in tax in other areas such as education, Bullet said.


NZ First has long wanted to remove GST from food as part of numerous proposed policies. Labour also had a policy to remove GST from fresh fruit and vegetables, going into the 2011 election campaign, but dropped the proposal a few years later.

"Invariably, both major political parties in New Zealand over the years, where there has been calls to take GST off food and beverages have resisted it and have said, 'We will stay with a simple tax and have GST on all food, just as we have on medicines and education'," Bullot said.

Prime Minister Jacinda Ardern said during last year's election campaign that GST on fruit and vegetables would to stay if the Labour party was elected but that she wanted an inquiry into high food prices.

Ardern told NZ Herald Focus that if elected she would look into why food in New Zealand cost so much compared to other countries, particularly Australia.

"What I do actually think we should look at is why our food prices are so high, relative particularly to Australia. I think that's the question we should be asking ourselves," Ardern said in September.

A spokeswoman for the Prime Minister's office said: "We know the cost of food is a concern for low income families and it is one of the reasons we are lifting incomes through our families package, raising the minimum wage and making changes to employment law."

In the UK there is zero-VAT on most food, including unprocessed meat and fish, fruit and vegetables, cereals, nuts and pulses. There is, however, tax on ice cream, some confectionery, alcoholic beverages and some savoury snacks. The vast majority of food in Australian and US supermarkets is tax-free.

Consumer NZ chief executive Sue Chetwin said exempting tax from food and beverage would be complex, and tax was not the only factor driving up prices.


"There is an argument that fresh fruit and vegetables should be GST exempt, or food basics. But then where do you draw the line?," Chetwin said. "Overall food is expensive in New Zealand – look at butter and cheese, and other dairy products. Fonterra argues it applies international prices to the New Zealand market."

Another factor causing high food prices was the lack of any "real competition" in New Zealand, Chetwin said.

First Retail Group managing director Chris Wilkinson agreed.

"In the UK, the food market is much more competitive with more players at wholesale and retail [level], with easier serviceability - small country, easily connected - and sourcing ability from European countries helping to keep pricing down," Wilkinson said.

"The challenge with variability in taxation is it is complex for businesses and consumers.""

Senior ASB economist Mark Smith said there was no "real free lunch" from removing tax on food.


"There could well be positive benefits from removing food tax and promoting healthier eating, and better health outcomes ... but the opportunity cost needs to be considered - where taxes might go in other areas, and whether or not removing tax from one area might create distortion throughout the economy, which can result in weaker economic performance over time," Smith said.

An OECD study released last year revealed the GDP to tax ratio average should sit at around 33.4 per cent, with which New Zealand is inline.

European countries, and those with little or no tax on food, tended to have higher GDP to tax ratios, Smith said, usually in the form of higher personal income tax.

Australia also has higher personal income tax.

New Zealand tended to be higher than the OECD average on corporate tax, Smith said.

"The benefits from our tax system is it's simple, and it is broad-based, so distortions from the tax system as a whole are relatively low. This tends to promote more economic efficiency, whereas if you look at exemptions for certain things then there is a potential for a lot more resources being used to avoid that."


The Herald has approached the government for details of its said food inquiry.