Proposal to take GST off food desperate: PM

Prime Minister John Key has slammed as "desperate" a suggestion by Labour that it will consider taking GST off food as part of its policy rethink in Opposition.

National is expected to raise GST from 12.5 per cent to 15 per cent in the May 20 Budget and lower the top personal tax rate from 38c to 33c.

Mr Key said that 20 per cent of the GST revenue to the Government came from GST on food and cutting it would cost the Government coffers $3 billion.

He said that if a Labour government returned the top tax rate to 38c and had it applying to income over $100,000, as Mr Goff advocated, that would generate only $450 million in tax revenue.

That would go nowhere to making up the cost of removing GST from food. There would be a "two-and-a-half billion-dollar hole in the accounts".

Mr Key said the reason GST had worked so well was the simplicity of the system.

He said that if National raised GST in the Budget, then all New Zealanders would be compensated for that through lower taxes or changes to New Zealand super or benefits.

"They will certainly be no worse off, and for the vast bulk they will be better off."

Mr Key was responding to comments made yesterday by Labour finance spokesman David Cunliffe, who confirmed the party was rethinking a raft of policies.

They included GST, KiwiSaver and whether it should be made compulsory, and rules around land ownership by foreigners.

Labour has a special caucus meeting in Nelson next week.