Given the current cost of living crisis and the forever increasing prices of food in New Zealand, questions are being raised about how to make food more affordable. A common response, that is raised on a regular basis, is to remove GST from “food”.
Is removing GST from food a possible partial temporary solution to the cost-of-living issue? In short, yes, but as ever in tax, the position is more complex. While it may make some difference, it is likely not the best use of Government funds to tackle the current situation.
OECD jurisdictions such as the United Kingdom, Australia and Canada have regimes where tax is not applied to particular food items. However, the introduction of such a measure would be complex in nature and may not be an efficient tool to ultimately and quickly reduce the cost of food in New Zealand. Recent studies of overseas changes to VAT rates have also shown that a significant portion of any GST rate cuts are not passed on to the end consumers. When you also consider spending patterns, any reductions that are passed onto consumers would provide the greatest dollar benefit to the highest-earning households who spend more.