The Labour Party is proposing to remove the goods and services tax (GST) from fresh and frozen fruit and vegetables and make major changes to the Working for Families system if it is re-elected at the October 14 election.
Leader Chris Hipkins said the changes mean many low and middle-income New Zealand households with young children would be better off by around $30 a week next year. This would increase once the full Working for Families changes are made in several years.
"Since becoming Prime Minister my focus has been on delivering cost savings across the key expenses families face," Hipkins said on Sunday.
"While taking GST off fruit and vegetables isn't a silver bullet, alongside other measures to reduce costs we're delivering a meaningful difference.
"Our 10-point cost of living package includes free doctor's prescriptions, cheaper childcare and 20 hours free ECE for two-year-olds, free or half price public transport for children and young people and now GST off fruit and vegetables and a $25 boost to Working for Families – and there's more to come."
Finance spokesperson Grant Robertson confirmed there were no proposals to change income tax levels or introduce a wealth tax or capital gains tax. That doesn't mean some regular duties, levies or fees won't increase as they previously have under National and Labour.
"In uncertain economic times, our view is that it is best to be consistent and stable," Robertson said.
"The times call for restraint and simple, clear and smart policies which grow our economy, help drive inflation down and provide targeted help to those families who need it the most."
"Now is not the time for new taxes or to promise tens of billions of dollars in unfunded tax cuts which would add to inflation and take money away from health, education and housing to line the pockets of the wealthy."
GST removal
Labour's policy of removing GST from fresh fruit and vegetables had already mostly been announced by their opposition - the National Party. National hadn't mentioned that the policy also includes frozen products.
Hipkins said that while inflation is trending downwards, including food price increases, food remains a "big cost for families so this is a good policy for today and the future".
The food price index for July released this week showed food prices had fallen 1.1 percent over the month after a seasonal adjustment. Fruit and vegetables fell 7.8 percent. However, prices are still 9.6 percent higher than a year ago, with fruit and vegetables up 6.2 percent.
Labour estimates that removing GST from those food products would save households about $4.25 per week based on the 2019 Household Economic Survey results and recent price increases.
It argues this is a conservative estimate, with other sources like StatsNZ's Household Living Costs Price Index indicating removing GST from fresh and frozen fruit and veges could save about $4.94 a week
While the wealthiest families spend the most on groceries, Labour says those with lower or more average incomes tend to spend a larger proportion of their overall income on fruit and vegetables, meaning the policy will have a greater impact on them.
Announcing the policy on Sunday, leader Chris Hipkins said New Zealand is "currently an outlier" globally by not having GST carve-outs for certain products.
"In the modern world with electronic transactions it's a fairly simple policy to implement. Our aim is to have it in place as soon as 1 April next year," he said.
The policy is estimated by Labour to cost about $2 billion over four years and would be met through the annual Budget allowance.
Removing GST from food has been an idea bandied about in New Zealand before - including by Labour - and implemented in countries overseas.
One of the arguments against it has been that supermarkets may not pass on all the savings to customers.
Labour says the new Grocery Commissioner will be able to check retailers actually pass on the removal of GST from the products to consumers
"The Commissioner has powers under the Grocery Industry Competition Act 2023 to require information and reports from supermarkets on matters such as their prices and margins," a Labour policy document says.
"They can also proactively issue guidelines laying out their expectations. The Grocery Commissioner will receive and investigate complaints. We will ensure they are able to get under the hood and report publicly to ensure benefits are passed on by supermarkets."
Another issue previously raised with removing GST is that there could be debates about what products the exemption applies to and which it does not. This has occurred overseas and led to court cases.
Labour says its exemption would not apply to canned or dried items and also not to juices.
"We have to draw a line somewhere and where we have gone is affordable, practical, and achieves our policy aims. There are boundaries everywhere in the tax system and we're confident tax officials can make it work.
"Our framework is based on whether the fruit or vegetable has been 'processed' or not. Processed in this context means cooked or combined with other ingredients. This rules out anything canned because of the heating process that accompanies canning."
Under the Labour policy, 'processed' does not mean being cut up and wrapped without additives.
"This means that pre prepared vegetables like fresh spinach in a bag would be zero-rated. The same rules mean that a mix of vegetables frozen together would also be zero-rated for GST. On the other hand, potatoes mashed into chips, coated in canola oil and then frozen would be excluded and would still attract GST."
It acknowledges there will be some "line-calls" and will therefore establish an expert group "to work through the finer details of the policy and help develop the empowering legislation".
"New Zealand has the advantage of implementing this policy with lessons from other jurisdictions around the world that have made similar exemption moves and had these tested in their court systems," the policy document says.
"If required, low-cost determinations will be able to be provided through Inland Revenue's Dispute Review Unit or, where necessary, the Taxation Review Authority to avoid the need for court hearings."
Working for Families
Labour's proposed changes to Working for Families include a $25 per week increase to the In-Work Tax Credit from April 1, 2024. This is paid out to families who receive some income from paid work each week.
This is currently set at $72.50 per week for families with one to three children, but would be increased to $97.50 per week if Labour is re-elected. It's estimated this would help about 175,000 low and middle-income working families. Families would receive an extra $15 a week for each subsequent child.
Labour is also proposing to lift the Working for Families abatement threshold to $50,000 from April 1, 2026. It currently sits at $42,700.
This would mean families would be able to receive the tax credits even if their incomes rise slightly.
"Our work to increase the wages of New Zealand workers has brought more families closer to or over the threshold at which some Working for Families tax credits begin to abate," a Labour policy document says.
"For example, Labour has increased the Minimum Wage from $15.75 to $22.70, meaning a family with one parent working full time on the Minimum Wage now earns $4,500 above the abatement threshold and receives $23 a week less in Working for Families tax credits."
At the start of 2021, just under 350,000 families received tax credits. This is down from 420,000 in 2011 as people's incomes have grown past the current abatement thresholds.
"An estimated 175,000 households will gain $47 per week on average during the next term of Government from the combined impact of these two changes," Labour says.
The policy is expected to cost about $1.4 billion over four years with the cost met through the annual Budget allowance.
Background on GST removal
Labour campaigned on removing GST from fruit and vegetables at the 2011 election, but ditched the idea after its loss.
In 2017, then-leader Jacinda Ardern said removing GST created complexity and "you can't necessarily guarantee, if you take it off, that food prices will stay down".
When Ardern and Labour gained power, they set up the Tax Working Group, chaired by former Labour Finance Minister Sir Michael Cullen.
In a report in 2019, the group recommended against a food and drink GST exemption.
"GST exceptions are complex, poorly targeted for achieving distributional goals and generate large compliance costs. Furthermore, it is not clear whether the benefits of specific GST exceptions are passed on to consumers."
The group found that while a greater proportion of lower-income households' weekly expenditure goes towards food and drink than higher-income families', wealthier people spend more.
"The Group estimates that the removal of GST on food and drink will benefit a household in the highest income decile by $53.03 per week, whereas a household in the second lowest income decile will benefit by $14.35 per week"
Data from the Household Economic Survey in 2019 shows that couples with children spent the most on fruit and vegetables weekly, while one-person households spent the least.
In terms of income groups, the most amount of money was spent on fruit and vegetables by the wealthiest people and the least by some of the lowest-income households.
Robertson, Labour's finance spokesperson and the current Finance Minister, has also previously spoken against GST exemptions on food.
Last year, at an Auckland Business Chamber event, Robertson said GST exemptions can become "an absolute boondoggle to get through".
"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," he said at the time.
"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."
Earlier this month, Robertson refused to say whether he still believed it would be a boondoggle.
However, he has said there have been things that were once called a boondoggle "that turned out all right".
There are examples of some foods being exempt from GST overseas, but they have often lead to debates in court. In Australia, GST applies to crackers, biscuits, wafers and pretzels, but not to bread. There was a federal court case over whether an oven-baked Italian "flat bread" was a bread or cracker.
Tax specialists have largely opposed tinkering with GST.
Dentons Kensington Swan Tax Partner Bruce Bernacchi told AM in July that removing GST from food would help high-income earners more and it wasn't clear if supermarkets would pass on the full savings.
"It can absolutely work, but is it good tax policy? Well, in my view it's not," he said.
"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."
Te Pāti Māori wants to remove GST from all food. It says this policy would cost about $3.4 billion per year and would lead to families being able to buy on average "seven weeks of free food per year" due to the savings from current prices.
"GST is a regressive tax that impacts lower income whanau who are forced to spend nearly every cent they earn," the party said.
Tax plans
Hipkins has already ruled out a wealth or capital gains tax.
In July, he said the current economic conditions meant it wasn't time for a big shake-up of the tax system.
"Experimenting with a wealth tax doesn't fit that approach which is why I'm ruling it out. My position on CGT is a continuation of the position the Government has held since 2018.
"While work was already underway on a potential wealth tax and CGT as part of a tax switch in the Budget I ultimately made the call not to proceed with it. We simply didn't have a mandate to implement those tax changes."
That proposed tax switch which was torched by Hipkins would have included a $10,000 tax-free threshold and a number of small increases to benefits paid for by a 1.5 percent wealth tax on net wealth over $5 million.
The Green Party is campaigning on an 'Income Guarantee' package that also includes a tax-free threshold, other changes to tax rates resulting in cuts for many, and a replacement to the Jobseeker benefit and Working for Families. It would be paid for a wealth tax on income over $2 million, a trust tax of 1.5 percent and a new top income tax rate.
The National Party has not yet released its full tax policy and costings. However, it has committed to adjusting tax brackets to take into account inflation. Under a policy released last year, anyone earning $45,000 would have received $112 back each year, while someone earning $150,000 would get $1043.
While National had initially said it would ditch the top 39 percent tax rate, it put this under review last year after a major hike in the Official Cash Rate.
