OPINION
As part of its cost of living plan, this month Labour pledged to take the GST off fruit and vegetables from April 1 next year, which would save families about $20 a month.
“Fresh and frozen fruit and vegetables will have GST removed, but this won’t apply to canned and dried items, or to juices,” Labour said.
And like a kick to the guts, the bickering over creating a classification system entered the political void.
In 2010, the Māori Party introduced the Goods and Services Tax (Exemption of Health Food) Amendment Bill 2010 to exempt healthy food from GST.
The classification system reared its ugly head during its first reading, with former Act MP Heather Roy noting fish and chips could be exempt because it contained fish and vegetables.
Labour campaigned to remove GST from fruit and vegetables in 2011, then NZ First went on to push to remove GST from “basic food items” in 2017.
In 2018, a Tax Working Group (TWG) said removing GST from food would exponentially benefit high-income earners and simply complicate the tax system.
In its interim report, the TWG said “GST exceptions are a poorly-targeted mechanism to achieve distributional goals”, exceptions would create arbitrary boundaries, and those boundaries would lead to a floodgate of issues.
Essentially, it screamed bloody murder saying all hell would break loose - especially for businesses and the IRD. Instead, it suggested households would be better off getting an equal lump sum payment.
Value Added Taxes (VAT) such as GST exist in more than 150 countries, and the UK, Canada, and Australia are among those including broad provisions to exclude or reduce taxes on certain foods.
In an Auckland University Law Review paper in 2018, lawyer Anna Percy said by the standards of the developed world, “New Zealand’s approach is eccentric and outrageous”.
She added: “Although New Zealand’s GST is generally considered a stable and efficient tax, it imposes a disproportionate burden on households with lower incomes.”
One thing’s for certain, any tax that speaks to describing certain items could be giving accountancy and law firms a financial boost. Let’s look at some of the legal cases overseas.
Biscuit, baked goods, and basket cases
In the 1991 case of United Biscuits, the question was whether Jaffa Cakes were cakes or biscuits. Bizarrely, chocolate was at the heart of the saga where chocolate covered cake was GST-equivalent free, while chocolate biscuits were not.
Although expert evidence involving the introduction of a giant Jaffa Cake in court was discounted - incredible! - the company took the cake and walked away GST-free.
In the 2008 UK case of Proctor & Gamble, the question centred around whether Pringles would be considered tax-exempt potatoes, or potato crisps, potato sticks, potato puffs, or food made from potatoes, potato flour, or from potato starch, which wouldn’t be tax exempt.
Pringles in this case weren’t potato-ey enough.
Percy said the UK’s absurd classification issues stemmed from how the food was defined in the legal drafting.
“Tax legislation requires enough detail to maintain the tax base and provide certainty, but detailed rules cannot answer every question or provide complete certainty in the law.
“If specific rules are based on clear principles, principles can resolve a borderline case when specific rules cannot.”
The result has led to arbitrary boundaries and definitional difficulties and a convoluted, voluminous body of case law, Percy said.
In contrast, Canada’s provisions excluding VAT tax from all basic groceries are guided by principles and between 1988 and 2019 there have been only seven cases before the courts.
For example, salads that aren’t canned or vacuum-sealed aren’t tax exempt - which I find strange when I think about it, but I digress.
In the case of Ontario Ltd, the question was whether a salad kit could be tax exempt. The judge pointed to the purpose of the legislation and said as it required preparation, it wouldn’t be classified as ‘ready-to-eat’ and could be tax exempt.
Australia gets brownie points for leading the way having only a handful of cases. Basic, unprepared foods are GST-free, and non-essential foods (lollies and bikkies), prepared, and cooked foods are not.
Australia excludes food made on the premises, such as restaurants, supermarkets, hotels, or food courts with tables for eating, and venues.
Hot food made away from premises is also excluded, such as takeaway foods, or food made above room temperature.
And while the naysayers would argue hot bread wouldn’t therefore qualify for a tax exemption, Australia allows for bread sold while still warm. But, a hot sausage from Bunnings wouldn’t qualify, as the sausage fails to meet the standard.
In the case of Lansell House Pty Ltd, the Federal Court of Australia found a Mini Ciabatte was a cracker rather than bread due to being small, hard, and crisp.
Kinnerton Confectionery Ltd considered whether an allergen-free chocolate bar was cooking chocolate or a confectionery item. It was held to be the latter. I’m glad I’m not the only one who has resorted to eating cooking chocolate in a bid to get my confectionery fix.
Where to from here?
Rawiri Waititi’s private member’s bill to remove GST from all food and non-alcoholic beverages is perhaps too far as it doesn’t address issues associated with ultra-processed foods.
Although if it’s a matter of reducing inequity, a broad stroke would do the trick and counter the disproportionate burden on low income earners induced by the standard rate of 15 per cent.
To limit it to fruit and vegetables seems illogical using a “basic necessities” model, as living on fruit and vegetables alone can have dire consequences, which was the case for raw vegan diet influencer, Zhanna Samsonova.
There are also questions around who would benefit most - fruit and vegetables and food preparation generally takes time and energy.
What’s more, if it’s to provide an incentive to get people to cook, then why not include flour, eggs and dairy, for example?
Percy puts it best saying a policy choice must be made between the goals of equity and those of simplicity and efficiency.
“Historically in New Zealand, goals of simplicity and efficiency have always won out. However, this is not the case for the rest of the world.”
If political parties are genuinely concerned for the welfare of the country, it shouldn’t be a case of whether to do it, but rather how to do it most effectively.
Sasha Borissenko is a freelance journalist who has reported extensively on the legal industry.
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