Labour's unfunded GST policy worth $1 a week

27 September 2010 0 Comments

Labour's unfunded policy to remove GST from fresh fruit and vegetables would deliver only $1 a week for the average Kiwi - and much less for low income earners, Finance Minister Bill English says.

The estimated $250 million cost of the new policy would have to be paid for by extra borrowing, pushing up already fast-rising public debt.

"However it's good to see Labour confirming they would leave GST at 15 per cent on all other goods and services - they now realise that the vast majority of Kiwis will be better off from the Government's income tax-GST switch," Mr English says.

"But their politically desperate move to remove GST from fresh fruit and vegetables would needlessly complicate the tax system, increase compliance costs and create all sorts of perverse anomalies.

The $250 million annual cost of the move, divided among all New Zealanders, is worth, on average, just over $1 a week - less for low income earners and more for high income earners.

"This puts the Government's tax switch, which will leave the average income earner $15 a week better off, into perspective," Mr English says. "It's also worth noting that fruit and vegetable prices have actually fallen by 11 per cent since National took office, having jumped 54 per cent under Labour."

The Tax Working Group last year concluded that removing GST from food would make almost no difference to the distribution of tax across income levels, but would lose 20 per cent of GST revenue. This would have to be made up by increasing other taxes.

"Labour's policy makes no sense and smacks of political desperation," Mr English says. "Phil Goff must explain to New Zealanders why he is removing GST from imported, out-of-season raspberries and asparagus, but not from New Zealand frozen peas, which are a nutritious part of many Kiwi meals.

"People would be able to buy GST-free potatoes, take them home and make deep-fried chips. But at the same time, healthy foods like Weetbix, low-fat milk and wholegrain bread would be subject to GST.

"Setting those boundaries will introduce considerable administrative and compliance costs for Government and retailers, legal uncertainty, and opportunities to game the system.

"The experience from other countries with these sorts of policies is of protracted legal disputes and hundreds of pages of rules to determine where exactly the boundaries lie.

"Labour needs to answer these kinds of questions - and explain how it would pay for this muddled policy," Mr English says.

LABOUR'S INFLATION TRACK RECORD

Just about every cost of living figure has improved significantly since 2008, leaving consumers better off under this Government.

  • In the few years running up to 2008, inflation was regularly above 3 per cent and peaked at 5.1 per cent in the year to September 2008 - with no compensation to anybody. Inflation is currently running at 1.8 per cent under the National-led Government.
  • Under Labour, fruit and vegetable prices jumped 54% (an average 5% a year). Under the National-led Government they have fallen 11 per cent.
  • Electricity prices increased 72 per cent in the nine years to 2008 - three times the rate of inflation. They are up by only 6 per cent in nearly two years under the National-led Government.
  • Petrol prices went to $2.11 for a litre of 91 octane in 2008 - they are now just above $1.70.
  • Labour's ETS scheme would have doubled the cost on households to about $330 a year.
  • Floating mortgage rates were almost 11 per cent under Labour - they're now about 6 per cent.

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