Thursday, April 01, 2010

Against GST on food

Before the last election, the minnow party RAM pushed the idea of removing GST from food. At the time, I (along with most of the left blogosphere) thought it wasn't such a good idea - "that the hassle, confusion and increased compliance costs will likely swallow any benefit", and that it missed the real problem, which was income adequacy (or rather, the lack of it).

Thanks to Gordon Campbell's piece in Werewolf today, I've changed my mind. Campbell looks at Australia's implementation of GST - which excludes food - and at evidence from New Zealand on the effects of removing GST from food. Both are pretty compelling. On the former, good work by the Australian Taxation Office made compliance costs negligible. They introduced a software package integrated with the Australian barcode system which assessed every item with a barcode for the exemption, backed by a legal guarantee that businesses relying on it would not face any penalties if those assessments turned out to be wrong. Result: the assessment cost gets paid once, by the ATO, rather than many times, by each business. Compliance costs are low, and everyone has certainty. Sounds good, neh?

On the second point, Campbell cites research by the Wellington School of Medicine on what happened when shoppers were effectively exempted from GST on food items. The result was a significant increase in both the amount and proportion of healthy food purchased. The study also investigated the effects of education, and found they were negligible (and that is for highly targeted and specific - i.e. expensive and intrusive - education at that). So the empirical evidence is that removing GST on food would produce significant health benefits (and because of the regressive nature of GST, produce them at the bottom, where they are most needed).

So, low compliance costs (if we manage the change right), and positive health benefits. Against that, we have the simplicity of the tax system i.e. the intellectual purity of some bean-counter's ideological schema. One of these things is worth more than the other, and it isn't religious economics. I'll take solid real-world benefits over pure thinking any day.

The rest of the world, including our closest neighbour, exempts food from consumption takes. They make it work. We can too. And we should.