A Mexican that grew up with GST-free basic food items is supporting Te Pāti Māori’s call for the goods and services tax to be removed from food in New Zealand too.
A petition calling for the Government to exempt all food from the 15 per cent tax was launched on Sunday.
Rafael Contreras Rodriguez said Mexico’s ‘basic basket’ policy includes GST-free basic foods, household necessities such as batteries and services in sectors such as education.
“It was a big difference when we were able to afford a bit more every week," Contreras Rodriguez said.
“People that can afford more can spend more, so the economy benefits, then people that are less privileged are able to buy things that are necessary for day-to-day life."
Contreras Rodriguez said when lawmakers intended to remove the policy five years ago, there were riots.
“Do you ever know poor country rioting, telling the Government ‘just leave the things as they are, don’t move it, we like it,’ ... everybody benefits from this.”
Contreras Rodriguez disagrees with the Tax Working Group’s 2019 recommendation not to remove GST from food because of the complexity of implementing the change, the ineffectiveness of the measure for targeting benefits for lower socio-economic households and large compliance costs.
“That study was designed to fail; they only reviewed and made an example from what the UK did for all this.
“If you make it flexible, it’s complex, if you make it fixed, specific it’s not complex and that’s a truth that’s been proven in my country,” Contreras Rodriguez said.
The Tax Working Group’s summary also stated it’s unclear if the benefits of GST exceptions are passed on to shoppers.
Te Pāti Māori co-leader Debbie Ngarewa-Packer said it’s the best solution to help households save money when buying food, as the cost of living rises.
"If you got $330 or $40 I think a week is the average price of groceries, this is proposing to bring another $49 extra into that household,” she said.
“We have consistently said that we’ll be focusing on how we are able to address the problem that poverty has created.”
Ngarewa-Packer said financial hardship has been exacerbated by the pandemic.
“It’s cruel hardship that whānau are unnecessarily enduring.
"We need to be able to come up with not knee-jerk reactions but sustainable solutions that are going to once and for all ease the pain,” she said.
Five OECD countries don't apply a tax to certain food items including Mexico, United Kingdom, Australia, Canada and Ireland.
GST-free food products in these countries are varied but usually include bread, fruit and vegetables, milk and eggs.
Most European countries apply reduced tax rates to some food items.
Limited research from Australia suggests removing GST exemptions could have a detrimental health impact.
Economists’ views on the policy are mixed with some stating it would disrupt New Zealand’s ‘tidy’ GST system based on the single 15 per cent tax rate and lead to complicated administration.
“I'm not convinced the extra burden and complexity would outweigh the benefits of reducing costs, particularly of healthy, less processed kai,” Associate Professor Matt Roskruge of Massey University’s Economics and Finance School said.
“There might be more targeted policies that directly benefit low-income earners but this certainly doesn't seem like a bad idea,” he said.
Roskruge said research on how much GST is collected from food, which foods will be included and how the scheme could work in New Zealand is needed.
“It certainly seems like it’s doable and parties have been arguing that it’s doable including Labour for a long time now.”
Roskruge suggested the loss in Government revenue could be collected through different taxes such as a capital gains tax.
“We do have a low top income band in New Zealand and I think that there’s certainly an option to increase income taxes a little bit, especially at that top end.
“We have lots of social services that are in a bit of trouble, our hospitals aren’t in good shape at the moment so the more revenue that we have to support that infrastructure, the better,” he said.
Te Pāti Māori said in a press release new wealth, land and pollution taxes would be implemented to cover the cost of the policy.
The Government has said it’s not looking at removing GST from food.
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