Do not remove GST on Food
There could be few greater acts of economic vandalism than removing GST on food. It is the wrong answer to the problem of increasing food prices.
It is no surprise, as the Herald reports, that people outside supermarkets will sign a petition calling for GST to be removed from food. And if you stood outside medical centres with a petition for no GST on doctor’s fees, people would sign that also.
So why should one not remove GST on food. Here’s a few:
- It would impose significant compliance costs on retailers. Instead of just dividing their sales by nine, they would have to be able to track every single item sold, and whether or not that is food. If you go to the corner dairy and buy a pie and a newspaper then the pie has no GST on it and the newspaper does. So the poor corner diary would be forced out of business as they can’t afford a supermarket type electronic scanning system where every item sold is tracked.
- It would start a trend of removing GST on more and more items, and the future political scene will be a series of debates about what GST should be one. If one removes GST on food, then some would argue GST should be removed on gym memberships as a public health initiative. Then GST should be removed books as a literacy initiative. Seriously – there would be almost no end.
- As Dr Cullen says this is a one-off change that can never be repeated, and any benefits from it could well be swallowed up by further changes in international food prices.
- It would mean direct taxes would be $2.4 billion higher than they need to be, to compensate for the GST loss.