A very long and very qualified list of people who think this is a bad idea.
Also, the infamous Jaffa cake lawsuit.
Just one example of working out edge cases costing a fortune.
A very long and very qualified list of people who think this is a bad idea.
Also, the infamous Jaffa cake lawsuit.
Just one example of working out edge cases costing a fortune.
An interesting article. Shitty click-bait headline.
A good portion of the responders make the “slippery slope” argument; i.e. if we open this hole then there is a temptation to complicate the GST system more. This is a poor argument and a fallacy for a reason; one thing does not necessitate another.
There are some really good points though, a couple of responders make the argument that middle to high income earners spend more on fruit and veg, thus the bulk of the benefit goes to those already on higher incomes. Now this is a great argument against changing GST; targeted tax relief or subsidies would be much more tax efficient and have the effect of helping those in need.
Another really good argument make is about the compliance costs of taxation; these are “dead weight losses”, costs that give you nothing in return, complicating the GST system, even a little, increases compliance costs is a terrible idea. Eric Crampton made a epic point,
I’m not sure how complicated the VAT/GST system is in Hungary compared to our world-leading simple GST system but it is certianly interesting.
Overall I was ambivalent about this policy as it would not really effect me much; I am in that mythical middle-to-higher income bracket; I would see a few dollars a week less on the grocery bill, but it would not materially effect my life. I assumed (bad move) that the policy was well thought out and had been vetted…turns out it is probably not. I also assumed that the anti-crowd were just the usual anti-Labour “we hate it because you said it group”.
This article has swayed me from “I don’t care” to “this seems like a bad idea”.
@[email protected] thanks for the post. A well thought out article.
The problem with GST is that it is regressive. It affects lower income households more than higher income households. It is “fair” in the sense that everyone pays the same %, but it is also “unfair” for the same reason we have a progressive income tax model.
Lower income households spend more of their income, as a %, on food. Anything which lowers the cost of food is good, in my opinion. Also, fresh produce is often more expensive than less healthy options. Anything which encourages a healthier diet is good in my opinion.
I agree it’s not perfect. I agree a different approach might have a greater effect for lower income households. But if the choice is between this policy and nothing, which National is running on, I will take this one.
The problem of GST is it’s regressive, but the benefit is that tourists pay it (unlike income tax) so we can use a lower rate.
I do wonder if a tax free threshold on income tax would create a better impact (affecting all equally instead of those that can buy more getting a bigger benefit), and would have much less administrative burden.
I’m starting to wonder if this is just an excuse to crease a commission to monitor the supermarket industry, which I think is a good thing.
I also think restructuring the tax brackets, including a 0% tax bracket, is something that is sorely needed. Adding a tax free threshold of, say, $20,000 would make a huge difference for those on minimum wage.
I’d think the easiest would be to just update the lowest tax bracket to 0% (I think this is under $14k?).
If we are going to change a bracket to $20k, then let’s do an across the board update (e.g. 0% under $20k, 20% under $70k, 30% under $150k, 40% for $150k and up - I just made these up on the spot, they would need to be properly balanced against expected revenue by a working group).
But if we’re just going for a quick election bribe, make the $14k and under bracket 0% and leave the rest.
In my perfect, dictatorship world, I would do both. I would find some value that fits the “bare minimum” income someone could make. This could be 0.5FTE at minimum wage, for example, and set that as 0%. I would then fix the tax brackets to inflation, add an extra bracket to the top 1-2% income earners. I would lower GST back to 12.5%, enact a CGT (which I prefer over a wealth tax if it targets assets), and tinker with teh rest of the tax code to close as many loopholes as possible.
You guys win my vote for PM!
It seems to me that this could be much better achieved by targeting the people who need it most rather than a blanket reduction.
The article (in the other post) states that approx $4 will be saved on $30 of zero-rated goods, this isn’t a great starting point but none the less it is what I am going to use. If we assume that on average $4/week for every household will be saved, that is $4/week that the isn’t being collected by the government per household. Wouldn’t it be better to keep collecting that $4/week of 100% of households and funnel $40/week to the 10% of households that are in need?
I believe that targeted programs are far more effective then generalist ones; obviously the numbers are very vague, but for the top 50% of the population the $4/week will not be noticed, but I guarantee that $40/week would be noticed by the bottom 10%. Obviously the net is that the bottom 10% are $36/week better off. Everybody else is at the same position as they are now.
Often targetted programmes miss those who truly need it. A common example given is free school lunches. If the whole school gets free lunch then the kids that really need it are more likely to get what they need, rather than only offering it to students that can prove low income.
Another example is unemployment benefits. Homeless people often don’t qualify because they don’t have a bank account (and can’t get one without an address), so miss out on support they sorely need.
With that said, GST exemptions benefit people with more money more than they benefit people with less money, so it’s not great from that perspective.
That is a fine point, bad but positive is better than nothing or negative.
I guess I am ideologically inclined to good and positive; i.e. targeted programs that use tax dollars to achieve the desired result rather than maybe helping some people a little bit, but we could never measure it so lets call it a win.
Absolutely, I’d be much happier with different policies. I think Labour is being frustratingly tentative, and I genuinely don’t understand why. I think this approach will cost them the election.
My view on this specific policy is there must be some benefit to it. Not only is it implemented all over the world, but I don’t believe politicians make these decisions in isolation. There will be some reason why this policy, specifically, has been chosen over any number of other ones. It might not be a good reason, but there will be one a reason.
As someone pointed out on another discussion; this is basically a one-way policy decision. Once implemented it is effectively impossible to reverse; so at some point in the past to win votes, a party promised this policy.
Once the policy is implemented it doesn’t matter how bad / good it is, removing this is a guaranteed vote loser. No party can afford to remove the policy. So it never gets removed and proliferates across the world, and worse people start looking at the prevalence of the policy as a reason to implement it.
Complicating the tax code is almost always a really bad idea, increasing compliance costs for businesses will be passed onto customers. How does the policy effect cafes, restaurants and other food prep places?
What about movie theaters, do dried popcorn kernels attract or not attract the tax cost? After they are popped they do since they have been heated, so the customer bears the GST cost but the cinema buys the “raw” ingredient tax free. Are there going to be differences between “naturally” air dried vs oven dried kernels? How much court time is going to be wasted on these kind of questions?
This was literally the first example I thought of, there will be a huge number of extra edge cases that this policy will have knock-on effects, this just means that things will get more expensive, probably not 15% more but, it will be there.
@[email protected] has already addressed much of your concerns, so I will only add the following: A lot of this discussion is about possible problems, without seeing the legislation fully written out. You, and others, are assuming that there are guaranteed to be all kinds of problems, without the actual text to point to and say “what about this?”. The point that other countries have enacted this policy without any, or too much, trouble should give you pause for thought that it is possible.
The point about being unable to remove it is a valid one, and one I share. However, as I (so far) feel this policy is overall positive, I am fine with it. As I said earlier, I think this policy addresses more than just adding a bit of money to your wallet each week. See this Auckland University Law Review article from 2019, which discusses the implementation in other jurisdictions and comes to the conclusion that zero-rating food is a net-positive policy. They also, rightly so in my opinion, point out:
Just to make it clear, my issue is not with valid criticism, but with a general dismissal due to perceived potential problems that might arise. For example, if someone can show that this policy would not be net-positive for income and health, or that it would harm vulnerable people, then I would naturally change my view.
Finally, I don’t buy the slippery slope argument at all. I think this policy should be judged on its own merits, and not with the background of “oooh they might make it EVEN MORE COMPLICATED!”.
God this is so common with any online political discourse, especially in here in NZ. Everyone starts thinking up all these potential issues and nothing ever changes. It also tends to reveal a lot of their biases. It’s fine to be concerned about the potential impacts of policy, and even better to plan for it. But doing nothing because almost everything has potential for some negative situations is ridiculous. Nothing any government will ever do will be perfect off the bat and have no edge cases. “Perfect is the enemy of good” and all that.
So many just jump straight to thinking up negative scenarios rather than trying to imagine what potential positive outcomes there could be, which we could then improve upon.
Only the end consumer pays GST, not a business, so the theater doesn’t pay GST regardless.
I like the sentiment but just want to point out something about how GST works. GST is a consumer tax, so for this:
The cinima is already buying popcorn GST free. Only the end consumer pays GST.
A better example might be a cafe that sells raw apples or bananas, but everything else is “processed” so they would have to do a software update for the sake of one item in the store that not that many people buy.
I’d prefer to see the level of GST lowered, myself. Once this is enacted, it will be difficult to undo.
I am a big fan of reducing GST across the board, absolutely. As a regressive tax, lowering GST in general should help low-income households a lot.