Election 2023: More fiscal holes as Labour faces questions about GST policy

National claims there is a big hole in Chris Hipkins' costings. Photo / Warren Buckland

It appears the 2023 election will be remembered for the many and varied allegations of fiscal holes levelled at the major parties.

After weeks of focus on National’s modelling, it was Labour’s turn to cop some flak. The low-tax lobby group the Taxpayers’ Union say Labour’s costings for its policy to remove GST from fresh and frozen fruit and vegetables do not account for the fact that people might change their eating habits and pay less tax by shifting to GST-exempt foods.

They allege this would leave a hole of $411 million to $123m.

Taxpayers’ Union executive director Jordan Williams said Labour’s costings appeared to have modelled the GST collected on fresh and frozen food to calculate how much the policy costs.

However, he said the policy should also take account of the fact people would likely eat more fresh and frozen fruit and vegetables and less other food if the policy were implemented. That would mean less tax being collected overall as people would buy more GST-exempt food and less food to which GST still applied.

The Taxpayers’ Union calculated the “hole” in the policy looking at economic models of substitution effects, and how much of the policy would be passed on to consumers.

Labour has said an effect of the policy would be to encourage more healthy eating.

Labour leader Chris Hipkins said “we do know the demand for fruit and veges can fluctuate through seasons and so we did account for that in the way we did our costings”.

“The costings are all there. Everybody can take a look at them and form their own judgments about whether the costings we have put out there are reasonable,” Hipkins said.

“Overall I am confident that we are confident that we are able to deliver it in the financial envelope we have costed for it.”

Hipkins would not say whether Labour had factored in demand changes when the party put together its costings.

National finance spokeswoman Nicola Willis said Labour should have used Treasury’s guidance to model demand changes.

“Treasury’s guidance has always been clear - any predictable change in demand should be accounted for when a policy is costed. Labour appears to have ignored this advice in costing their policy,” she said.

“Not a single economist supports Labour’s GST policy. This is a flimsy band-aid that won’t even take fruit and vegetable prices back to where they were a year ago.

“The Government’s own tax working group also found that only 30 per cent of GST reductions are passed on to consumers – meaning 70 per cent of the $2.2 billion policy becomes a subsidy to producers and supermarkets,” Willis said.

Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.