A tax expert says removing GST from fresh fruit and vegetables is poor tax policy that wouldn't actually save Kiwis money at the till.
The National Party is claiming Labour is about to announce an election policy promise to cut GST from fresh fruit and vegetables in an effort to reduce food prices.
Labour leader Chris Hipkins has refused to confirm or deny the allegations, saying the party will be releasing its tax policy soon.
Meanwhile, Te Pāti Māori went a step further with its policy which would cut GST from all kai.
But removing GST from fresh food isn't favoured by many tax experts including Dentons Kensington Swan Tax Partner Bruce Bernacchi who told AM host Laura Tupou it's bad policy.
Bernacchi said it would create significant compliance issues and the savings might not even be passed on to shoppers.
"It can absolutely work, but is it good tax policy? Well, in my view it's not," he said on Friday.
"It depends whether the supermarkets pass on those cost savings to the consumers and that's one of the concerns with the policy.
"There are two concerns, the first is that everyone benefits when you reduce GST or remove GST on fresh fruit and vegetables so that's your low-income earners and your high-income earners. And on an absolute basis, your high-income earners, because they tend to spend more at the supermarket, actually benefit more from this policy."
However low income earners pay more GST as a proportion of their income than high income earners.
Bernacchi said if parties really want to help out the poorest Kiwis, they would be much better off changing welfare policy, not tax policy.
"You're much better off focusing on welfare and transfer payments and looking at the income tax rates, looking at a tax-free threshold or increasing the income rates at which higher marginal tax rates kick in," he said.
Bernacchi said the debate over whether to remove GST from fresh produce is frustrating because the Tax Working Group already looked at it.
"The Labour Government commissioned a tax working group in 2018 and 2019. They spent $2 million and looked at wealth taxes, and said it was a bad idea. Looked at inheritance taxes, and said it was a bad idea. Looked at removing GST on food, said it was a bad idea. What do you do? Bring in a capital gains tax, which has a lot of precedent around the world and use that to reduce income taxes.
"And now we have politicians flying and shooting off at the hip recommending tax policies that are poor design."
He said it also adds questions about what is considered fresh fruit and vegetables which will add cost and debate and eat up any potential savings.
"It's just poor tax design and the consumers at the till are not going to win."
Te Herenga Waka — Victoria University of Wellington professor of taxation Lisa Marriott told Newshub she agreed with Bernacchi completely.
"There is evidence to suggest all the saving won’t be passed on to the final consumer – and it results in significant added complexity to what is a really good GST system," Marriott said.
"Overseas our GST system is seen as the model, specifically because it doesn’t have many exemptions. And, it collects a relatively high proportion of our tax revenue at a relatively low rate.
"Yes, lower income people pay more GST as a proportion of their income – but higher income people pay more overall, so would be the greater beneficiary of this policy. If you want to help people afford food, the best option is a targeted payment to those most in need in my opinion."
But while Bernacchi hates it, removing GST from fresh fruit and vegetables is very popular with Kiwis.
A Newshub-Reid Research poll last year asked people about taking GST off all food and a whopping 76.6 percent were in favour.
Just 18.5 percent said no and the rest didn't know.
Labour campaigned on removing GST on fruit and vegetables in 2011 but the policy was later scrapped. Labour leader Jacinda Ardern confirmed in 2017 that the party had no further plans to pursue it.
The Tax Working Group reported that removing GST from food and drink would have a greater benefit for higher-income households than lower-income households. It would save families in the bottom decile of income roughly $15 a week while families in the highest decile would save $53 a week, the group said.
