Labour will remove the GST from fruit and vegetables and make changes to Working for Families that will benefit about 160,000 families.
Chris Hipkins is revealing the party’s tax policy and has confirmed no changes to income tax levels and no introduction of new taxes such as a Wealth Tax or Capital Gains Tax.
The In-Work Tax Credit will be raised by $25 a week to $97.50 and the Working for Families abatement threshold will be raised, but not until 2026, to $50,000 to reflect wage growth.
Hipkins said removing GST from fruit and vegetable was "fairly simple" and would come into effect on April 1.
Hipkins said many low and middle-income Kiwi households would be $30 a week better off next year under the party’s tax policy.
Hipkins said New Zealand was starting to come out of a tough economic cycle, but acknowledged people still faced challenges.
He acknowledged food was a big cost for families, saying he’d seen families putting items from the supermarket back because the cost was too high.
New statistics released by Stats NZ show food prices rose 1.6% in June on the month before, the biggest monthly rise since the start of the year.
That includes an overall 8.1% increase on fruit and vegetables.
"I can’t control the weather, but I can do something about food prices," Hipkins said as he announced his GST removal off fruit and vege after citing the impact of Cyclone Gabrielle on food prices.
"A lot of the people who oppose these changes aren’t the ones worrying about their weekly food bills. This policy is aimed at New Zealanders for whom every dollar at the checkout matters," Hipkins said.
The cost of taking GST off fresh and frozen fruit and vegetables was estimated at $2 billion over four years, while increasing the in-work tax credit and lifting the Working for Families abatement threshold was expected to cost $1.4b over four years.
Labour’s policy document said today’s changes would be funded by removing the "last remaining large Covid-19 economic stimulus measure" - depreciation for non-residential buildings to support commercial property owners through the pandemic.
Finance spokesperson Grant Robertson, speaking ahead of Hipkins, told the 150-plus crowd at the St Paul’s Church in Lower Hutt that finances are tight domestically and internationally, and Labour would keep looking for savings and making things more efficient.
The benefit to low and middle income families through changes to Working for Families and the in-work tax credit was more than what National was offering through its tax cuts, Hipkins claimed
"Would I like to do more, of course I would … but now is not the right time for big inflationary spending," Hipkins said. He said if he had to target financial relief, he would aim it at families.
Hipkins said he accepted that people might think that Labour has not had a good year and had been "more focused on ourselves and not on you", a reference to the several ministers that have left or been dismissed from his Government.
Removal of GST from fruit and veg popular with voters
The move has proved widely popular with supporters across the political spectrum. A Talbot Mills poll found 66% of 1296 survey respondents supported or strongly supported the policy.
Eighty per cent of Labour supporters and 75% of Green supporters were in favour, while 59% of National supporters and 45% of Act supporters also believed it was a good move.
Crucially, the New Zealand Herald understands the policy went down well with swing voters, of whom 80% were in favour, according to the poll conducted from July 28 to August 2.
Talbot Mills, which conducted Labour’s internal polling, also asked people how Labour’s adoption of the policy might affect their likelihood of voting for Labour.
Sixty-nine per cent of people considered to be swing voters said they were either more likely or much more likely to vote for Labour as a result.
Overall, 45% of respondents said it would make them more likely to give their vote to Labour, while 42% said it would make no difference.
It didn’t move the dial for more than half of National and Act supporters, although 28% and 17% of them respectively said it would make it more likely they’d vote Labour.
Opposition reacts to the GST-free fruit and veg
The announcement will likely be welcomed as a win for National’s deputy leader Nicola Willis, who last month claimed she’d been leaked Labour’s plan to remove GST from fruit and vegetables.
It was her second accurate allegation, having claimed earlier this year that Labour was in the advanced stages of implementing a wealth tax, which turned out to be true. Hipkins has since ruled out introducing a wealth tax under his leadership.
Act Party leader David Seymour is critical of the tax policy, calling the move a "vote-buying gimmick".
"It’s an act of desperation from a visionless, poll-driven party which is out of ideas, out of Ministers, and fast running out of other people’s money," Seymour said in a statement.
"They know the policy doesn’t work, and we know they know because their own Finance spokesperson said so just a few months ago."
Average household to be better off
A recent Herald analysis found the average New Zealand household would be $5.63 better off each week if GST was removed from fruit and vegetables, but that it would benefit wealthier households more.
Using data from the household living-costs price index, which estimates how much different households spend on a range of goods and services, the Herald found an average household spent $2243 a year on fruit and vegetables. Of this, about $293 was GST - $5.63 per week.
At the top end of the Stats NZ household income scale, the highest-earning households spent $11.21 per week on fruit and vegetable GST, or $583 annually. However, the lowest-earning households spent only $2.21 weekly, or $115 per year.
Similar analysis from Labour estimated the weekly savings could be between $4.25 and $4.94.
Last month, Infometrics chief executive and economist Brad Olsen described the idea as "pure politics over economics".
"I’ve never, ever, spoken to an expert in the field before in economics or tax policy who says ‘this is good policy, love it’. Everyone thinks it’s diabolically silly."
Olsen said there was no way to guarantee the GST cut was "passed on and, more importantly … passed on in perpetuity", warning firms would simply absorb the GST cut, particularly in a time of high inflation.
Labour’s policy included giving the new Grocery Commissioner the responsibility of monitoring its implementation to ensure savings were being passed on to consumers.
An expert group with Inland Revenue would be established ahead of the introduction in April to decide whether certain products were exempt.
While Willis jumping the gun had proved awkward for Hipkins, it was more so for Finance MinisterGrant Robertson, who had rubbished the idea as recently as May.
"GST is a comprehensive tax which makes it very easy to administer and people in the room who’ve been in other countries with more exemptions will know it becomes an absolute boondoggle to get through," Robertson told Newshub in March last year.
"If you do it off fresh fruit and vegetables, or even staple products, then you get into an argument of what’s the difference between beetroot and canned beetroot, and if you want to make a real impact on the lowest-income people you wouldn’t cut the tax off fresh beetroot - that’s not what people on low incomes buy," he said.
Last weekend he changed his tune, telling TVNZ that "boondoggles can be worked through" and GST exemptions had been proven to be possible overseas.
Labour’s potential coalition partners had been mixed on the proposal.
In July, Greens co-leader James Shaw said his party thought a GST cut was the wrong way to go, arguing that other countries had issues in deciding what counted as "fresh" and what did not.
Te Pāti Māori had gone further, advocating for GST to be removed from all food.
The Tax Working Group, established by Labour in its first term and led by former Labour finance minister Michael Cullen, dismissed targeted GST exemptions as "complex, poorly targeted for achieving distributional goals and [would] generate significant compliance costs".
"Furthermore, it is not clear whether the benefit of specific GST exceptions are passed on to consumers."
It said taking GST off all food and drink - a far broader policy than what Labour was proposing - would cost $2.4 billion a year in 2018, and benefit the wealthiest 10% of households more than three times as much as the poorest 10%.
