KEY POINTS:
Those calling for GST to be removed from food should not draw any sustenance for their cause from the Prime Minister not having dismissed the idea entirely out of hand.
The blunt truth is that exempting items from GST is about the last thing the Government wants to
do. Equally, the last thing the Government wants to do right now is appear insensitive to the financial pain consumers are suffering at supermarket check-outs.
So, rather than place alterations in the GST regime firmly in the "never going to happen" category, Helen Clark yesterday adopted a less uncompromising stance, variously saying such exemptions would only be made with "some reluctance" or "considerable reservation".
It was a case of letting down gently those urging exemptions for food and fuel or signing petitions to that effect, rather than summarily rejecting the proposition even though the arguments against introducing such exemptions are overwhelming.
The other truth is that Labour could not exempt food even if it was suddenly converted to the idea.
This year's Budget, now little more than three weeks away, is already written.
Its centrepiece is Labour's plan for a series of phased personal tax cuts. Removing GST on food would result in around $2 billion or more in forgone tax revenue. That would immediately put those personal tax cuts in doubt.
Labour simply cannot afford not to deliver on personal tax cuts. Voters have waited too long for them already.
Finance Minister Michael Cullen has already disappointed once by reneging on the so-called "chewing-gum" tax cuts which would have taken effect this month.
As it is, voters will probably have to wait until next April before Labour's new cuts take effect.
The question now is whether Labour, acutely conscious of the political damage it is suffering from rising food prices, will offer any instant relief in the Budget. A sizeable, one-off, lump sum tax rebate for wage and salary earners, for example?
Citing Budget secrecy, the Prime Minister yesterday refused to discuss possible options, thereby fuelling speculation that Labour will have something extra to unveil on May 22.
If so, that will not be in the form of exempting food from GST.
While Labour might get some electoral fillip from such an announcement, it would take months to implement. The definitions of exactly which foods would be exempted would have to be hammered out - a hideously complex exercise.
A more complicated GST regime would also impose massive compliance costs on retailers. Labour would cop the inevitable backlash.
And once you start exempting things from GST, where do you stop?
The simpler solution would be to cut the 12.5 per cent rate at which GST is imposed on just about all goods and services. However, for every percentage point cut, the Government loses around $935 million in revenue. Dropping the rate to 10 per cent would cost the Government as much in forgone revenue as exempting food.
Not surprisingly, the Prime Minister made it clear yesterday that was not a goer either.
Exempting food or cutting the rate of GST appear to be simple ways of easing stretched household budgets. They are thus superficially attractive. But the arguments against them are strong enough to have produced a political consensus between Labour and National not to alter GST fundamentals.
So far - no doubt much to Labour's relief - that consensus is holding.
