Labour will remove GST from fresh and frozen fruit and vegetables as part of its much-anticipated tax policy to be revealed today.
Party leader Chris Hipkins will make the announcement this afternoon in Lower Hutt alongside other tax changes Labour wants to make if re-elected after October 14.
And it will come at a time of ever-soaring food prices, including the latest spike to a 36-year high. New statistics released by Stats NZ show food prices rose 1.6 per cent in June on the month before, the biggest monthly rise since the start of the year.
That includes an overall 8.1 per cent increase on fruit and vegetables.
Labour’s planned removal of the 15 per cent tax, which would be introduced from April next year, is expected to save households between $4-$5 per week on their grocery bill. It would apply to fresh and frozen fruit and vegetables, but not processed or canned items including juices and frozen chips.
It was understood more details on the cost of the policy would be provided today.
The move has proved widely popular with supporters across the political spectrum. A Talbot Mills poll found 66 per cent of 1296 survey respondents supported or strongly supported the policy.
Eighty per cent of Labour supporters and 75 per cent of Green supporters were in favour, while 59 per cent of National supporters and 45 per cent of Act supporters also believed it was a good move.
Crucially, the Herald understands the policy went down well with swing voters, of whom 80 per cent were in favour, according to the poll conducted from July 28 to August 2.
Talbot Mills, which conducted Labour’s internal polling, also asked people how Labour’s adoption of the policy might affect their likelihood of voting for Labour.
Sixty-nine per cent of people considered to be swing voters said they were either more likely or much more likely to vote for Labour as a result.
Overall, 45 per cent of respondents said it would make them more likely to give their vote to Labour, while 42 per cent said it would make no difference.
It didn’t move the dial for more than half of National and Act supporters, although 28 per cent and 17 per cent of them respectively said it would make it more likely they’d vote Labour.
The announcement will likely be welcomed as a win for National’s deputy leader Nicola Willis, who last month claimed she’d been leaked Labour’s plan to remove GST from fruit and vegetables.
It was her second accurate allegation, having claimed earlier this year that Labour was in the advanced stages of implementing a wealth tax, which turned out to be true. Hipkins has since ruled out introducing a wealth tax under his leadership.
A recent Herald analysis found the average New Zealand household would be $5.63 better off each week if GST was removed from fruit and vegetables, but that it would benefit wealthier households more.
Using data from the household living-costs price index, which estimates how much different households spend on a range of goods and services, the Herald found an average household spent $2243 a year on fruit and vegetables. Of this, about $293 was GST - $5.63 per week.
At the top end of the Stats NZ household income scale, the highest-earning households spent $11.21 per week on fruit and vegetable GST, or $583 annually. However, the lowest-earning households spent only $2.21 weekly, or $115 per year.
Similar analysis from Labour estimated the weekly savings could be between $4.25 and $4.94.
Last month, 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.
Labour’s policy included giving the new Grocery Commissioner the responsibility of monitoring its implementation to ensure savings were being passed on to consumers.
An expert group with Inland Revenue would be established ahead of the introduction in April to decide whether certain products were exempt.
While Willis jumping the gun had proved awkward for Hipkins, it was more so for Finance MinisterGrant Robertson, who had 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.
Last weekend he changed his tune, telling TVNZ that “boondoggles can be worked through” and GST exemptions had been proven to be possible overseas.
Labour’s potential coalition partners had been mixed on the proposal.
In July, Greens 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.
Te Pāti Māori had gone further, advocating for GST to be removed from all food.
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 [would] 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 was proposing - would cost $2.4 billion 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.