Labour is planning to resuscitate a policy from its disastrous 2011 election campaign to revive its ailing electoral hopes: taking GST off fresh fruit and vegetables.
That is according to National Party Finance spokeswoman Nicola Willis who said she had been handed details of the plan.
Willis has form in this area, claiming earlier this year that Labour was in the advanced stages of implementing a wealth tax, which turned out to be true.
The Herald has confirmed Labour has looked at changes to GST as part of its tax policy - although the final details have not been announced. It is the second major leak from Labour in as many days.
Willis warned the tax would hand millions to some of the country’s largest and most profitable companies who would absorb the cut, and fatten their margins.
A Labour Party battered and bruised from losing its fourth minister in seven months, and beset by a major leak from caucus this week, did not deny the tax rumours, with at least one MP saying the policy sounded like a good idea.
“I’m not going to announce a tax policy today and Nicola Willis should be focused on making her own policies add up,” Hipkins said.
Police Minister Ginny Andersen, a Hipkins loyalist, noted it was an idea that had been “considered before - it’s a nice idea”.
“Yeah it’s not a bad idea,” she said.
Asked whether the plan was actually Labour policy, Andersen said it would be “pre-announcing the Labour Party tax policy”.
The Government’s new Revenue Minister Barbara Edmonds also did not deny Labour would be taking GST off fresh fruit and vegetables.
“Every party will have the ability to release their tax policies and ours is coming out in the coming weeks,” Edmonds said.
“I’m not going to release our tax policy without the Prime Minister,” she said.
Edmonds took over the role just this week after her predecessor David Parker asked to be reshuffled out of the job saying it was “untenable” for him to continue.
Parker did not stop to take questions on his way to the House on Thursday - the fifth time he has walked away from waiting media since Hipkins revealed he had killed Parker’s beloved wealth tax.
The policy, if correct, puts the party at odds with economists, at odds with its own Tax Working Group, at odds with coalition partners the Greens - and even at odds with Finance Minister Grant Robertson who rubbished the idea as recently as May.
“GST is a comprehensive tax which makes it very easy to administer and people in the room who’ve been in other countries with more exemptions will know it becomes an absolute boondoggle to get through,” Robertson told Newshub in March last year.
“If you do it off fresh fruit and vegetables, or even staple products, then you get into an argument of what’s the difference between beetroot and canned beetroot, and if you want to make a real impact on the lowest income people you wouldn’t cut the tax off fresh beetroot - that’s not what people on low incomes buy,” he said.
Green Party co-leader James Shaw said his party thought a GST cut was the wrong way to go, arguing that other countries had issues in deciding what counted as “fresh” and what did not.
In the United Kingdom, for example, chickens were taxed at different rates in the same establishment depending on whether they were cooked or not.
“We think it’s better to focus on people’s incomes,” Shaw said.
Shaw cited his own party’s policy which was to implement a wealth and trust tax to pay for tax cuts for 95 per cent of income taxpayers.
Of all the parties in Parliament, only Te Pāti Māori backed the GST policy, but it wants to go further, taking GST off all food. On Thursday, it unveiled a suite of other tax changes, including income tax cuts paid for by a wealth tax and hiking income and company tax.
Infometrics chief executive and economist Brad Olsen described the idea as “pure politics over economics - I’ve never, ever, spoken to an expert in the field before in economics or tax policy who says ‘this is good policy, love it’. Everyone thinks it’s diabolically silly.”
Olsen said there was no way to guarantee the GST cut was “passed on and, more importantly… passed on in perpetuity”, warning firms would simply absorb the GST cut, particularly in a time of high inflation.
Deloitte GST Partner Allan Bullot said the problem with taking GST off fresh fruit and vegetables was how to make it work, and whether suppliers and retailers will simply hike prices.
“I think that would actually be quite difficult to do. Then there’s ongoing [questions] of how do you do it?
“What do you do if the supermarket suppliers themselves put the prices up to the supermarkets [or] if you’ve got a non-resident that says, ‘Oh, I see that New Zealand is taking GST off food - I’ll crank my prices up’.”
He said it raised questions of whether seeds and fertiliser should also be GST exempt.
NZ Initiative chief economist Dr Eric Crampton told TVNZ’s Breakfast this morning that removing GST from some foods had worked “very badly” in other countries, with some becoming tied up in litigation over which foods qualified.
Even taking GST off all foods - as proposed by Te Pāti Māori - would have saved the lowest-income households only about $17 per week at the time the Tax Working Group looked at the issue in 2018.
“You could do a lot more good by simply increasing transfers to lower income communities by above that amount, rather than trying to take GST off of food.
“So generally you want to have an increase in broad-based taxes - not punch holes in GST - and then use the money to give it to people who you think need it.”
The Tax Working Group, established by Labour in its first term and led by former Labour Finance Minister Michael Cullen, dismissed targeted GST exemptions as “complex, poorly targeted for achieving distributional goals and generate significant compliance costs. Furthermore, it is not clear whether the benefit of specific GST exceptions are passed on to consumers.”
It said taking GST off all food and drink - a far broader policy than what Labour is proposing - would cost $2.4b a year in 2018, and benefit the wealthiest 10 per cent of households more than three times as much as the poorest 10 per cent.
Edmonds said that she was a “team player” and that she would implement the Labour tax policy.
“Whatever the tax policy that our party will release, I will make sure if I come back as the Minister of Revenue, I will make workable,” she said.
Having different rates of GST on different items is often criticised for creating a compliance burden for businesses, which is passed on to consumers.
Edmonds said this challenge was not insurmountable.
“There is always a compliance issue with any tax regime and it’s something that ministers and any party would need to work through,” she said.
Labour had planned to announce its tax policy last week but pulled the announcement sometime after the party’s Tuesday morning caucus meeting.
Thomas Coughlan is deputy political editor of the New Zealand Herald, which he joined in 2021. He previously worked for Stuff and Newsroom in their Press Gallery offices in Wellington. He started in the Press Gallery in 2018.