Even worse would be to define “basic food” as what is sold in appearance. We already have the issue with a lack of competition in the supermarket industry and that there is some sort of exemption in the current duopoly even more market power.
Food costs won’t drop that much
Exempting some things and not others adds cost to the system.
Food outlets sell more than just food. With the proposed exemptions some things they sell will be subject to GST and some not. Most petrol stations also sell food.
Ultimately, someone has to pay the complexity and the most happy ones about being the accountants.
Another issue is one of expectations. Food prices will drop but not by the full amount of GST. Basic economics teaches
The price rises for consumers but producers have to absorb some of that extra cost. When the tax comes off, therefore, the reverse happens, and producers and consumers share the cost reduction.
The 2018 Tax Working Group (TWG) did not support removing GST on food. It emphasizes how such exemptions lead to “complex food”, especially when “healthy food”.
They also state that such exemptions are “poorly targeted for achieving distributional reach”.
New Zealanders, especially those on low incomes, with the cost of living.
The working group explained that the government was willing to give the GST revenue from food, then it would be better to continue to collect the GST and simply refund it via an equal lump sum payment to every New Zealand household or taxpayer.
Higher income households pay more GST on food because they spend more on food than lower income households. Hence lower income households would get more back via a refund than what they pay in GST on food.
This would be a simpler way to address the issue faced by low income households.
The intentions with removing GST on food are good, but good intentions. If the government wishes to increase its support to the New Zealanders, it should remove GST on food is not.
This article is republished from The Conversation under a Creative Commons license. Read the original article here.