If the financial impact of removing GST off all food and drink is too great, should we consider only removing GST from “healthy foods” such as bread, butter, eggs, milk, fruit, and vegetables? This gives rise to interpretative issues. For example, if milk is to be exempted, what about milk powder or dairy milk alternatives? If fruit is exempted, what about fresh fruit juices, canned fruits, frozen fruit, or fruit spreads?
Drafting a coherent framework to distinguish GST treatments for “good food” would be an onerous task and would likely require constant revision which may offset any savings that individuals may gain from the removal of GST on food items.
GST systems have been modified in some jurisdictions, like Australia and the United Kingdom, to achieve policy objectives, such as promoting the consumption of healthy products. This results in an arbitrary and blurred line between what is subject to tax and what isn’t. In the United Kingdom we’ve seen cases to determine whether a Jaffa Cake is a biscuit or a cake, or whether a Pringle is a potato chip, and in Ireland, whether Subway uses ‘bread’.
Applying these sorts of rules to New Zealand, a chocolate chip cookie would likely not be subject to GST as the chocolate chips are included in the dough before baking. However, a plain biscuit with the base dipped in chocolate would be subject to GST as the biscuit is partly decorated with chocolate.
Ultimately creating distinctions like this would create more work for GST specialists, food technologists and lawyers, which will indirectly add to the cost of food. So, while it may be good for our businesses to take GST off food, we question if it would make GST better in the overall tax mix for New Zealand.
A current private member’s bill by Rawiri Waititi proposes to remove GST from all food and non-alcoholic beverages. While this in theory is easier from a classification perspective, there are still potential issues – “food” is defined consistently with the Food Act 2004, which is wide in interpretation. Additionally, it only removes GST from sales to consumers which would potentially exclude suppliers such as restaurants and supermarkets. This could result in supermarkets needing the ability to determine whether a customer is a consumer (no GST), or whether they’re a café/restaurant working picking up extra milk or eggs for the business (subject to GST at 15%).