Prime Minister Chris Hipkins is standing by his promise to strip GST from most fruit and vegetables, despite criticism from tax experts and political opponents who say the policy is untargeted and motivated by political gain.
The Child Poverty Action Group is also criticising Labour’s proposed changes to the financial support offered through Working for Families, with the group’s economics adviser claiming it does nothing to help 200,000 of the country’s most impoverished children.
Hipkins and several ministers took to Lower Hutt yesterday to confirm Labour’s predicted election promise that it would remove GST from fresh and frozen fruit and vegetables from April next year if elected, putting $4-5 per week back into people’s pockets at an overall cost of $2 billion over four years.
The 15 per cent tax would remain on items that had been processed, such as canned goods and juices. An expert group within Inland Revenue would be established to decide what products were exempt, and the Grocery Commissioner would be responsible for ensuring savings were passed on to consumers.
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Also announced today were Labour’s intended changes to the In-Work Tax Credit, raising it by $25 a week to $97.50. The Working for Families abatement threshold - the level of income at which people started becoming ineligible for support - would also be raised to $50,000 to reflect wage growth, but not until 2026.
Those changes would cost $1.4b over four years. All the policies would be partially funded through about $500 million saved from preventing non-residential building owners from writing off depreciation as an expense when they pay tax, a measure introduced during the Covid-19 pandemic.
It was estimated many low and middle-income Kiwi households would be better off by $30 a week next year under Labour’s plans.
That combined to form Labour’s tax policy ahead of the election campaign as Hipkins ruled out changes to income tax levels and said there would be no introduction of new taxes such as a wealth tax or capital gains tax.
That was a point pounced upon by Act leader David Seymour.
“Hipkins’ own goal shows this policy for what it is: an act of desperation from a visionless, poll-driven party,” he said.
National leader Christopher Luxon said the real winners under Labour’s plan were the supermarket chains, and tax cuts his party wanted would be a smarter move.
“The vast majority of Kiwis will be better off on our tax plan,” he said, noting the party’s full tax plan hadn’t yet been released.
In May, Finance Minister Grant Robertson voiced his opposition to taking GST off fruit/veges, but today spoke of his “road to Damascus”, or his changing view on the policy, saying he was confident the Grocery Commissioner could ensure savings were passed on.
Deloitte GST partner Allan Bullot cited New Zealand’s 2018 Tax Working Group that found, on average, similar schemes in other countries had only led to 30 per cent of the savings being passed on.
He believed Labour’s support for the policy was driven by “political forces” and the $2b price tag could have been used in a more targeted fashion.
Hipkins yesterday said the policy was for all New Zealanders and rubbished questions concerning opposition from tax experts.
“A lot of the people who oppose these changes aren’t the ones worrying about their weekly food bills. This policy is aimed at New Zealanders for whom every dollar at the checkout matters.”
Bullot said the policy would undoubtedly lead to more money for tax experts as people worked through the ramifications of the change.
Infometrics chief executive Brad Olsen said it was “clearly a popular political move” and abandoned some of New Zealand’s “hard-won economic credibility”.
“Despite the Prime Minister’s constant message that the policy is focused on low-income families, the financial benefit would give more support on a dollar basis to higher-income households.
“Taking the roughly $500m-a-year cost and literally just paying the lowest half of households by income in cash would’ve been a more effective policy.”
Child Poverty Action Group economics adviser Susan St John believed removing GST from fruit/veges was “rather meaningless” as it least benefited those who needed it the most.
She claimed the proposed changes to the In-Work Tax Credit made 200,000 Kiwi children invisible because it didn’t assist any parents who were on some form of benefit.
St John also argued the increase to the abatement threshold was insufficient now and was likely to be even more inadequate when the policy would be introduced in 2026 if wages increased further.
“I find it really surprising, because what Labour promised when they came in in 2017 was transformative change ... and this takes us nowhere in that direction.”
Social Development spokesperson Carmel Sepuloni said Labour had made “significant increases” to benefits.
Adam Pearse is a political reporter in the NZ Herald press gallery team, based at Parliament. He has worked for NZME since 2018, covering sport and health for the Northern Advocate in Whangārei before moving to the NZ Herald in Auckland, covering Covid-19 and crime.