‘$250 million amateur error in Labour’s GST costing’ – National

A closer look at Labour’s costings for their policy to remove GST from fruit and vegetables reveals a schoolboy error equating to quarter-of-a-billion-dollar hole, National’s Finance spokesperson Nicola Willis says.

“Most people can see this policy for what it is – desperate politics from a tired government. But in this desperate, last-ditch attempt to keep their jobs, Labour has mucked up the costings to the tune of around $250 million over the next two years.

“Labour say their policy to remove GST from fruit and vegetables would take effect on 1 April 2024, but this is not reflected in their costing of this policy.

“Labour has failed to account for the fiscal impact of removing GST in the 2023/24 fiscal year, and has only partially accounted for the cost of the policy in the 2024/25 fiscal year.

“If the policy is introduced when promised, there will be a three-month hit to the books in the 2023/24 fiscal year, which ends in June. This is not accounted for in Labour’s policy.

“Labour has also made a mistake in their costing for the 2024/25 fiscal year. The annual cost of the policy should be approximately $500 million as in later years, but Labour has only budgeted $365 million. This is not explained.

“The cumulative size of this error is likely to be around $250 million over the next two years.

“This cannot be explained away as a timing issue related to when GST is paid to IRD by businesses. Treasury are explicit in their advice: GST revenue is accounted for ‘when the purchase or sale of taxable goods and services occurs during the taxation period’.

“This is an amateurish mistake from a party who are trying to convince New Zealanders they can be trusted with the books.

“New Zealanders know it’s time for a National government that can be trusted with the books, will reduce taxes and rebuild the economy.”

Seymour calls out Labour’s ‘Massive Own Goal’

“In criticising income tax cuts [yesterday], Chris Hipkins has taken down his own GST policy with a huge own goal”, says ACT Leader David Seymour.

“Hipkins said [yesterday] of income tax cuts:

‘If I’m going to target support, I’d rather give it to mums and dads than to millionaires’.

“But his own policy launched today will do just that.

“Removing GST from fruit and vegetables will help wealthier households three times more than it will lower income households.

“Hipkins’ own goal shows this policy for what it is: an act of desperation from a visionless, poll-driven party. Labour is out of ideas, out of Ministers, and out of money.

“Labour knows the policy doesn’t work because Grant Robertson said so just a few months ago.

“Labour, the Greens, and the Māori Party would destroy the tax system, the economy, and drive away anyone with ambition.

“Labour going all in on GST meddling sets up an election between parties with serious ideas to improve economic policy, and parties with vote buying gimmicks who are also the ones that got us into this mess”.

GST cut will give kiwis 57 cents a week extra – ACT

“Labour’s own Tax Working Group led by former Finance Minister Michael Cullen showed that only 30 per cent of the benefit from removing GST from fruit and vegetables will be passed through to consumers in the form of lower prices, with supermarkets keeping the rest. That means the average New Zealander will be just 57 cents better off each week”, says ACT Leader David Seymour.

“Labour says removing GST from fruit and vegetables will cost $515 million a year. If only 30 per cent of the benefit is passed through to consumer prices, that’s a $154.5 million reduction in the price of fruit and vegetables. Spread over 5.2 million people, the average person will see a benefit of just $29.70 a year, or 57 cents a week.

“The Tax Working Group examined whether GST exemptions for certain goods would be passed on to consumers. After examining research that considered 191 reductions in value-added tax rates for specific items, it concluded:

‘…changes in rates for specific goods and services were on average not fully passed through and had an estimated average pass through rate of approximately 30 percent.’

“In 2010, Finland reduced the VAT rate on restaurant and catering services from 22 per cent to 13 per cent. Only 31 per cent of the rate cut was passed through to consumer prices and the amount of reduction was highly variable among restaurants.

“In 2010, the VAT rate on hotels, guesthouses and campsites in Germany was reduced from 19 per cent to 7 per cent. Only 28.4 per cent of the rate cut was passed through to consumer prices.

“In 2009, France reduced the VAT rate on restaurant services from 19.6 per cent to 5.5 per cent. Only 45 per cent of the rate cut was passed through to consumer prices.

“The upshot is that there are much more effective ways of helping New Zealanders with the cost of living crisis, including by providing income tax cuts funding by reductions in wasteful spending, as ACT has outlined in our fully costed alternative budget.

“This policy an act of desperation from a visionless, poll-driven party. Labour is out of ideas, out of Ministers, and out of money.

“Labour knows the policy doesn’t work because Grant Robertson said so just a few months ago.

“Labour, the Greens, and the Māori Party would destroy the tax system, the economy, and drive away anyone with ambition.

“Labour going all in on GST meddling sets up an election between parties with serious ideas to improve economic policy, and parties with vote buying gimmicks who are also the ones that got us into this mess”.

What is “processed”? The boondoggle Robertson warned about

“Working out what counts as ‘processed’ fruit and vegetables for the purposes of GST exemptions is the boondoggle Grant Robertson warned us about – but the policy will be a boon for the bureaucrats who administer it and the lawyers who argue about it”, says ACT Leader David Seymour.

“Labour says the removal of GST from fruit and vegetables will only apply to non-processed fresh and frozen fruit and vegetables.

“But what will count as ‘processed’?

“Is removing kernels from a cob of corn processing?

“A fresh watermelon is sliced in half before sale. Is that processed? What about:

• A fresh watermelon sliced into bite-sized pieces?
• A fresh watermelon sliced into bite-sized pieces and mixed with bite-sized pieces of other fruit, but with no other ingredients?
• A fresh watermelon sliced into bite-sized pieces and mixed with bite-sized pieces of other fruit, but with no other ingredients and with a preservative so it stays fresh?

“Fresh and frozen capsicum will be GST-exempt. What about frozen capsicum that is sold sliced with the seeds removed. Is that processed? What if the frozen sliced capsicum is treated with a water glaze for better freezing? If that’s allowed, why not dressing on sliced cabbage and lettuce?

“Maybe Labour will distinguish between food presented for immediate consumption and food presented for grocery sale. In that case, compare a bag of washed carrots with a bag of washed baby carrots. The latter is packaged for eating as a snack. Which has GST?

“This policy will be a boon for the new bureaucrats who will be hired to work out what’s exempt and the lawyers who will lobby on behalf of producers.

“Meanwhile, as ACT has pointed out, consumers will only get less than a third of the benefit from the removal of GST from fruit and vegetables. The average New Zealander will be 57 cents a week better off.

“This policy will mean more complexity, more costs, and more bureaucracy for so little gain.

“All of this begs the question: why not just reduce wasteful government spending and cut income taxes?”