Posts Tagged ‘GST’

Why taking GST off fresh food won’t help the poor, improve their health, or make them slim

Thursday, December 9th, 2010


There has been quite a bit of fuss of late about GST on fresh fruit and vegetables. The Maori Party’s Rahui Katene put forward a private members bill that would have exempted healthy food from GST, and more recently Labour has announced that will remove GST from fresh fruit and vegetables.

Reasons for removing GST off particular foodstuffs vary but tend to fall under two main headings: “struggling” families need a break to be able to afford good quality food; and removing GST on fresh fruit and vegetables will encourage people to eat more of them, and this will be better for their health.

These are worthwhile goals in themselves. The question is, will removing GST off fruit and veges achieve them?

Before answering that, we need to consider what removing GST would mean in practice. At present New Zealand’s GST captures everything except housing, rents and financial transactions, all of which can be ignored for our purposes. This universal application makes administration easy for both IRD and businesses processing GST returns, and it means organisations don’t waste time trying to squeeze their service or product into a GST-exempt category to gain a competitive price advantage. This saves everyone time and money.

The trade off is that GST is regressive. Because GST is an across-the-board tax, everyone pays the same GST on a carton of milk so low-income households pay more GST as a proportion of their income than higher income households. Taking GST off fruit and vegetables does not make it ‘less regressive’ – on the contrary because high-income households are more likely to buy fresh fruit and vegetables it further tips the scales in their favour. How do we know this?

The 2003 Children’s Nutrition Survey[i] found that children in low-income families ate less fruit and vegetables. More recent research done for the Families Commission[ii] also found that low-income households ate fewer fruit and vegetables, and that buying more would be difficult on their current budgets. Conversely, the Auckland Regional Public Health Service[iii] has shown that junk food outlets are more likely to be found in low-decile suburbs.[iv] Here’s why: if, at the end of the week, there’s $5 to feed the family, do you buy carrots and lean chicken breast or a loaf of cheap bread and some greasy chips? Carrots might be better for the kids but they’ll complain about being hungry. On the other hand, children love those cheap chicken nibbles.

Going back to the $5. Suppose a loaf of bread costs $1. That leaves $4. Suppose vegetables are GST exempt, that means they cost $3.48, that is an additional 52c is available to spend on food. That’s the equivalent of about an apple. For $4, the choice is hot chips, or some fresh veges and an apple. Only one of these is guaranteed to be childproof – ergo, chip butties it is!

The problem is not the absolute price of fresh fruit and vegetables, it’s that even if they are GST exempt the price difference between healthy food and less healthy food means many households will continue to purchase less healthy food. As well, there is now a lot of evidence that here is people on low incomes tend to purchase calorie dense foods with the money they have available. These foods are high in fat, and often highly processed with little or no nutritional value.  This is a major contributor to obesity and overweight in low-income people because they, quite rationally, buy as many calories as they can for their money.[v] Junk food may have little nutritional value, but that doesn’t matter if the goal is to feel full.

Nor does removing GST address the important issue of socioeconomic inequality. Obesity rates are higher in countries with high rates of income inequality as measured by the Gini coefficient.[vi] The graph below plots obesity rates of OECD countries against their Gini coefficient.[vii] The trend line shows that there is a correlation (0.6) between income inequality and obesity. (Note this is only obesity, not obese and overweight.)

Food is more than just fuel, it is also a comfort and a treat. People on low incomes are more likely to be stressed, and for them junk food that is engineered to taste good is stress relief, and perhaps even be an affordable luxury.

Until we attend to issues of low absolute levels of income that favour the purchase of cheap bad food, and high levels of income inequality that are correlated with high levels of stress and associated overweight and obesity, then we might as well collect the GST off fruit and vegetables and use it for something socially useful. The relative prices of fresh fruit and vegetables and poor quality food is such that removing GST off fresh food might change the buying patterns of a few individuals and families on the margins, but will not significantly alter the buying habits of low-income households.

This should not be taken as an argument that all poor people eat junk because they don’t know any better or can’t cook. Most families are perfectly aware of basic nutrition, but low incomes restrict their food choices. The Families Commission research found that low-income families were no different from other groups when it came to planning, cooking and eating meals.

Two other points are relevant here. The first is that, for the reasons above, attempts to prevent beneficiaries buying junk food by issuing them with so-called ‘smart cards’ won’t work. Beneficiaries will quickly find ways to circumvent the system, and as anyone who has watched food stamps being misused can attest, retailers are perfectly happy to help them. It is also incorrect to assume that only beneficiaries have low incomes, and patronising to assume only they are incapable of making ‘sensible’ food choices.

The second is the argument that New Zealand is one of the few countries in the developed world that doesn’t make some GST exemptions for food. If that made a difference we would expect our problems – poor food purchasing choices by low-income families, heart disease and high densities of junk food outlets – to be unique. But they’re not. Other countries are struggling with the same issues and the medical consequences of high rates of obesity. The UK, which has food exemptions on VAT, has higher rates of obesity that New Zealand, and equally low rates of fresh food consumption. In the US, the fattest country in the world, millions are now dependent on food stamps, and sales tax exemptions are not making a shred of difference to food affordability or the problems associated with unhealthy diets. If removing GST made a real difference, we would expect other countries to be eating better than us, but they’re not.

Eating habits are a complex mix of learned behaviour, education, food preparation and cooking skills, cultural expectations, food availability and affordability, income, expectations, and personal preferences. Playing around the margins of one small aspect of this mix – price – is unlikely to move those habits. Policies need to address the harder issues of income and socioeconomic inequality to begin to make a difference.

Footnotes

[i] Ministry of Health. 2003. NZ Food NZ Children: Key Results of the 2002 National Children’s Nutrition Survey. Wellington: Ministry of Health.

[ii] Smith, C, W Parnell, and R Brown. 2010. Family Food Environment: Barriers to Acquiring Affordable and Nutritious Food in New Zealand Households. Wellington: Families Commission Blue Skies Report 32/10.

[iii] Auckland Regional Public Health Service. 2006. Improving Health and Well-being: A Public Health Perspective for Local Authorities in the Auckland Region. Auckland: Auckland Regional Public Health Service.

[iv] Here ‘junk’ means highly processed food that is high in some combination of fat, salt and sugar.

[v] Drewnowski, A, and N Darmon. 2005. The Economics of Obesity: Dietary Energy Density and Energy Cost. American Journal of Clinical Nutrition 82(suppl):265S-273S.

[vi] The Gini coefficient is a measure of income inequality. I is perfect inequality, 0 is perfect equality. Most OECD countries have a Gini coefficient of 0.2-0.4, with higher numbers being more unequal.

[vii] Two outliers have been taken out: Japan because with an obesity rate of about 3% it is well outside the normal OECD range, and diet is a big factor; and Turkey because it exhibits a Gini coefficient that is more consistent with a developing economy.

© Donna Wynd 2010

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Donna Wynd is chief research and policy analyst for the Child Poverty Action Group. She was co-editor of CPAG’s cornerstone report Left Behind: How social and income inequalities damage NZ children (2008) and the author of CPAG’s report on foodbank use in NZ, Hard to Swallow, along with many other submissions, articles and presentations for CPAG and others.

She has a background in law and economics, and also represented New Zealand in cycling at the 1996 Olympics.

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GST exemption – follow-up comments

Tuesday, October 5th, 2010

James Caygill replies to David Choat:

First off, as I’ve said privately to David, I think this whole Two Views thing is fantastic – I hope others agree.

Second, a few things that need some correction/clarification. David risked putting words in my mouth, but pulled it off pretty well. I guess, right now, I would say that I’m in favour of a simple, exemption-free GST, and see it as an enduring achievement of the Fourth Labour Government – much like a lot of their enduring achievements, which while it’s unpopular to say, have stood the text of time. But I consciously didn’t want to get into that debate first up, I preferred to let it emerge out of our two pieces. I’m genuinely interested in arguments against GST as the pure system I think it should be – but they need to be clear and coherent arguments. I don’t think what I’ve seen from Labour so far meets that standard.

If you can convince me that GST (especially at 10 or 12.5%) is silly and we should abandon it, then I’m willing to move, at which point the tax should be abandoned, not kept in a half-hearted form. In that sense you’ll find me currently in favour or the tax, but against the exemption; and willing to consider changing my position on the tax, but not the exemption.

And to be clear, I don’t support a flat tax structure – I agree it’s anti-progressive and something Labour should be loudly against. So I’m half-way between the poles David paints. I’d far prefer that we were out there promising to make our income tax structure more progressive at the same time as lowering GST. We could make it really simple, by saying we’d repeal the entire tax-switch! How novel.

I’m also concerned that a lot of the literature, and studies that people point to seem to be based on a general food exemption, rather than just FF&V. For example, one of the biggest problems (if you accept it’s a problem – which I do) about the relative price of ‘bad’ food, is the price of soft-drink relative to other, healthier drinks. This policy does nothing in that direction, and I suspect that the health gains are therefore likely to be over-estimated.

I’m in favour of widening the range of policy mechanisms that David points to when referencing Ed Miliband, James Purnell and our own David Craig. But I have a high standard that needs to be met before I’ll accept that a new mechanism is worthy.

In that sense I’m not willing to accept David’s “anything sensible we can to positively impact the distribution of disposable income in a way that supplements more direct measures should be welcome (especially if it doesn’t attract howls that we’ve “turned people into beneficiaries”). Indeed I think we need to rebut strongly the ‘turning people into beneficiaries frame’ just as much as we need to widen our policy toolkit.

Most of all, what we need is good, open debate. And for the first time in a while I feel that David is doing just that here, and that is brilliant.


UPDATE Tuesday 5 October, 10.23 pm David replies to James:

Thanks for your follow-up comment, James, and for helping to make this ‘Two Views’ work. Thanks too for the two excellent comments we’ve received at the time of writing, from Darel Hall and Ayesha Verrall.

James, I think your statement that “you’ll find me currently in favour or the tax, but against the exemption; and willing to consider changing my position on the tax, but not the exemption” sums up why we’re probably not going to reach agreement on this issue. I see the the breadth of coverage of GST as primarily an administrative consideration — exemptions were a nightmare to administer in the 1980s but are somewhat easier to handle now due to computerisation, so long as they’re well-designed. You seem to see it as something more fundamental than that.

Similarly, while you say you’re “in favour of widening the range of policy mechanisms” used to achieve a more equal disposable income distribution, you add that “I have a high standard that needs to be met before I’ll accept that a new mechanism is worthy.” I’d venture to submit that in practice that means you’ll tend to default back to the ‘comfort zone’ of ‘Redistributive Market Liberals’, i.e. tax credits and targeted tax cuts.

As I’ve said, I support some further use of those mechanisms but I think we need to recognise that they will only take us so far, and the more use we make of them the more we risk ‘push-back’. Yes, we need to challenge the Right’s discourse about “turning people into beneficiaries” (were the wealthy people who got unneeded $200 a week ‘hand-outs’ on 1 October also beneficaries?). But we may also need to accept that, as David Craig’s post on this topic suggests, there’s a more fundamental sentiment than a few Crosby-Textor talking points underlying the sense that income that appears to take the form of a market-determined wage has more legimacy than a state-samctioned entitlement.

Now, obviously, the solution to this goes way beyond a 13% drop in the price of fresh fruit and veges. But I think if we’re going to move forward with “widening the range of policy mechanisms”, we’re going to have proceed with an open mind and a level playing-field. If we set much higher thresholds for action in new areas, and don’t ask hard questions about the efficacy of the old familiar mechanisms, then we’re just going to keep repeating what we’ve prevously done. And I’m not sure that’s going to take us that much further.

I guess what I’m calling for is a willingness to experiment a bit. However, your and Darel’s critiques have reminded me that the corollary of that is a commitment to rigorous evaluation, and being open to reconsidering what we’re put in place if it isn’t as effective as we hoped. As Ayesha said, the GST change should have “both scale and impact” (though it ought to be accompanied by other interventions around diet and activity). Let’s test whether it actually does make a difference to people’s shopping and eating habits. If not, perhaps we should be willing to say, “it was worth a try”, and invest the money somewhere else instead.


UPDATE Friday 8 October, 10.30 am James gets the last word:

I guess you are right David, I will default to the comfort zone of redistributive market liberals, but only to a certain extent.

I actually feel caught wanting Labour to be more radical, not less. But if they can’t be as radical as I would hope, then I feel they shouldn’t hedge. If we’re going to complain about the tax system then let’s complain about it! Let’s go for a Capital Gains Tax, let’s commit to higher taxes on the wealthy, let’s properly put a price on Carbon. Let’s get serious.

Most importantly let’s be clear about how government should raise revenue before we start spending it – because I feel that one of the reasons this announcement annoys me is that there’s a false dichotomy being used – “We can’t afford to reverse GST, so this is what we’ll do.” But we haven’t actually answered the first part to my satisfaction, so I can’t see how we should be asked to accept the second part.

In the end though (and here’s where I think this experiment of your’s is a huge success) if the policy is put forward on the terms you lay out – I can grudgingly accept it. I won’t agree with it, but I can find peace. But if it’s not; if this really is just silly populism backed by weak arguments then I’m really struggling to see how we’re going to make a case to be a credible government.

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The progressive case for GST exemptions

Tuesday, October 5th, 2010

In the second part of this “Two Views” exchange, David Choat replies to James Caygill’s post.

First of all, I’d like to thank James for agreeing to participate in this ‘Two Views’ on GST exemptions. It’s not easy sticking your neck out and being the one to say ‘they’ve got it wrong’. As it happens, I think Labour have made the right move in deciding to remove GST from fresh fruit and vegetables, but I also think it’s important that progressives be willing to publicly debate the merits of initiatives like this. It’s more respectful to Labour (and the Greens) to assess their plans in a balanced way, than to feel that their merits are so fragile that only uniform unwavering praise from their supporters will get them through.

I can’t help thinking that a major part of James and my differing views on this initiative stems from our differing views on GST overall. At the risk of putting words in his mouth, James appears to see the establishment of a simple, exemption-free GST as an enduring achievement of the Fourth Labour Government. I have much more mixed feelings. I see GST as part of the Rogernomics reform of the tax system in the mid-1980s. And while I wouldn’t want to go back to all the complexities and rebates of the Muldoon-era tax system, the Rogernomics reform represented a significant rebalancing of our tax system in a less progressive direction, and was a major contributor to our becoming one of the most unequal societies in the OECD.

A combination of factors — including voter psychology, media ownership, the risk of capital strikes and perhaps some timidity on the part of progressives — mean that we are largely stuck with this settlement of a relatively flat income tax regime twinned with (regressive) GST.

So I don’t accept James’s dichotomy that we should either accept the current design of GST as sacrosanct or rethink it entirely. We don’t really have the freedom for the latter at this juncture, so we should treat GST as a not-particularly-beloved part of the furniture — not something we can easily get rid of, but something we have no compunctions about adding or removing the odd feature from, if it suits our current purposes.

So what about this particular proposed adjustment?

I’d accept James’s point that this isn’t necessarily the most brilliantly effective mechanism for redistributing money into the hands of the needy that could possibly be designed.

And that it isn’t necessarily the best mechanism conceivable for encouraging people to eating in a more healthy way either.

But I think it will make some progress on both those fronts. And not many initiatives have a ‘double-bang’ like that, especially on such important issues as those.

It also has the secondary attraction of acting as some form of repudiation to the Key-English-Hide government’s regressive and unpopular GST hike. Labour and the Greens were right to oppose the increase to 15% being imposed in the first place, but reversing it wholesale, as James suggests, would be a more messy prospect. Much of the so-called ‘tax switch’, other than for the very rich and the very poor, is largely ‘churn’, with Key-English-Hide giving with one hand and taking away with the other. But that means that reversing it would involve a lot of churn too.

Better to target the truly offensive aspects of the package (the impost on the poor, the giveaway to the rich) and put in place specific measures to address those (as Phil Goff has signalled by promising to restore the top tax rate). This initiative allows Labour to do that, without simply leaving the GST changes to stand untouched.

All of that adds up to quite an appealing résumé for a policy that, while costly, is not overwhelmingly expensive. A bit of context for that statement may be in order. My understanding is that taking GST off fresh fruit and vegetables would cost around $250-$300 million a year. That’s around about the amount of additional funding Labour put into schools and early childhood education in Budget 2008 (which included SchoolsPlus), or the (operating balance) impact of interest-free student loans. It is small enough to be paid for (albeit with considerable difficulty) out of the $1.1 billion (ongoing) already set aside for Budget 2012. Working for Families, by contrast, had a full-impact cost of $1.1 billion a year for the initial policy in Budget 2004 plus an extra $500 million a year for the extension promised in Labour’s 2005 manifesto. And the personal income tax cuts in Budget 2010 had a full-impact cost of $4.3 billion a year.

Returning to the GST exemption impact on redistribution and health, I should add that I’m also a bit more positive about this measure’s likely affects than James. He contrasts the exemption unfavourably with HEHA (Healthy Eating/Healthy Action), but I’m not so sure. There were some good measures in HEHA but my impression is that it was pretty targeted and reliant on public education and exhortation, which I tend to be a bit sceptical of. But James knows this area better than me, so I’m happy to stand corrected.

I’m pretty confident, though, that one important thing that HEHA didn’t do is alter the relativities between fresh food and fast food, which I see as one of the most important underlying drivers of our obesity troubles. As I often do, let me turn to Matthew Yglesias who shares the following graph (from David Leonhardt) showing the divergence between fresh fruit and vegetable prices and those of other food and beverages (especially fizzy drinks) in the US over the last thirty years:

In that context, I think there’s a real value in measures that try to target price directly. (And since the impact while be disproportionately upon the poor, who spend more of their income on groceries, I prefer a GST-free carrot to the stick of ’sugar taxes’.)

In terms of the policy’s other impact, on people’s pockets, James prefers a continuation of the sort of direct redistribution that progressive governments have focussed on recent years, through tax credits (like Working for Families) or targeted tax cuts. I hope we’ll see some of this in future, too, but one of the emerging themes on Policy Progress recently is that those sort of measures will not be enough on their own. We’ve seen that in the reflections of James Purnell, in the guest-posts of David Craig, and even from new UK Labour leader Ed Miliband.

The amount of change to our income distribution needed to make New Zealand a decent egalitarian society again; the limitations of trying to sail against the tide of market forces that are pushing widening income dispersal (without trying to change that tide); and the greater legitimacy that people ascribe to what seem to be market allocations of income. All these suggest that we need to widen the set of mechanisms we bring to bear on tackling inequality.

Obviously, simply removing GST from fresh fruit and vegetable is not The Answer to that challenge. But anything sensible we can to positively impact the distribution of disposable income in a way that supplements more direct measures should be welcome (especially if it doesn’t attract howls that we’ve “turned people into beneficiaries”).

Finally, I should address James’s challenge that the policy simply won’t work: supermarkets will pocket some or all of the reduction, so there will be minimal effect on prices. This is essentially an empirical question, so I did a quick search on Google Scholar. This quote from a paper from Latvian economist Alf Vanags seems to sum up the state of literature:

Hard evidence is somewhat thin on the ground but the studies cited in Blundell (2009) suggest that for “many goods we should expect a full pass on” (p 33) and that pass through is unlikely to be less than 75%.

This broad view is also taken by Copenhagen Economics (2007) who note “there is little doubt that permanently lowering the VAT rate on a particular good (or service) sooner or later will lead to a reduction in the price of the good more or less corresponding to the monetary equivalent of the lower VAT rate. If the VAT rate goes down by 10 percentage points on a good with a before tax price of €100, the price paid by the consumer will sooner or later drop by €10 for the vast majority of products. In economics jargon, there will be a strong tendency towards full pass-through” (p9).

I’m not claiming that GST-exemption on fresh fruit and vegetables is the best policy Labour has ever come up with, or that it should be the central plank of their election campaign. I’m certainly hoping for more from the next progressive government than cheaper groceries. But I think this initiative will be a worthwhile component within a broader suite of policies.

Coming up: short replies from both James and David.

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The progressive case against GST exemptions

Tuesday, October 5th, 2010

[Editor's note: this is our first experiment with a new feature, "Two Views", in which two progressive writers present contrasting posts on a significant issue or theme. In this case, it's James Caygill and myself on Labour's new GST policy. Both posts are going up at the same time, and subsequently each of us will put forward shorter follow-up responses, with James then having the last word. I hope you enjoy "Two Views" and would be interested in your feedback on whether to make it a semi-regular feature - David Choat.]

There’ve been a number of criticisms levelled against Labour’s new policy of “zero-rating GST on fresh fruit and veges” over the last week, but much of it has come from conservatives and might be discounted as such. I want to argue, however, that this policy is wrong from a progressive perspective.

Stuart Nash (Labour’s Revenue Spokesperson) gives two reasons for this policy change in his blog post:

  1. GST at 15% has crossed a threshold, it is “no longer a ‘low-rate’ consumption tax”, and will force “very difficult economic choices”.
  2. NZers are obese (we win Bronze in this event), this costs tax payers $500m pa, and something must be done!

Let’s look at those reasons. The first is just ‘Magic Number Theory’ at its worst – it’s just rhetoric. Certainly the cost of living will go up. But what line, exactly, has been crossed with a 2.5% increase in GST? And if another 2.5% GST does cross some sort of tipping point, then Labour should be promising to reverse the increase across the board.

I definitely can’t think of a compelling argument that the 2.5% increase warrants cutting Fresh Fruit and Veges (FF&V) to 0% and letting everything else attract the full 15%. What happened to “Axe the Tax!”? It is much more expensive to return to 12.5%, or go further to 10%, but I think that’s the place to be arguing.  Where’s the loud and proud argument for a progressive taxation system?

As for the health issues arising from poor food choice – I get that. But I’m unconvinced that this is the policy to fix it. Healthy Eating/Healthy Action from the previous Labour government (and cut by Mr Ryall) is far more important. Yes, there’s research out there that price is a better motivator than education but if Labour is looking for a king-hit policy to reduce obesity – this is not it.

As Idiot/Savant at No Right Turn correctly put it (before Gordon Campbell changed his mind with an article I found surprisingly weak):

The problem here is income adequacy, and you do not address that by cutting taxes. Instead, you address it by boosting wages and benefits. It’s cheaper, it allows you to target people in need rather than benefiting the rich, and it doesn’t play havoc with your tax system.

Mr Nash also pulls out a few points he considers relevant in the lively comments section of the blog. Those that make some general sense boil down to the following (my comments follow each point):

  1. FF&V are becoming luxury items for ordinary families.

    2. Food is less affordable than it used to be. But convince me that GST is the problem, rather than the supermarket duopoly, and plenty of other issues.

  2. FF&V demand is price elastic therefore more will be bought if we push the price down.

    3. This is necessary but not sufficient for the policy to work. The evidence seems to show that this is true for healthier foods under a general food exemption, so perhaps a FF&V exemption might produce the same results, but crucially Labour assumes that this tax treatment will actually lower prices (see below).

  3. The general tax changes on 1 October aren’t fair.

    4. I totally agree! But this is also beside the point in terms of this policy. This change doesn’t magically make everything okay. I’d rather see Labour promise to return to 12.5%.

  4. Others do it (Australia being the most cited)

    5. This is only relevant in that there is evidence (apparently) that zero-rating FF&V can be done with low compliance costs. Compliance costs aren’t my primary concern. They do it, we should too is silly. No one else has ACC, should we ditch the system? Hell no!

  5. If it’s appropriate to put up the price of cigarettes to discourage smoking, why wouldn’t government reduce the price of healthy fruit and vegetables and encourage healthy food choices?

    6. This confuses the role of policy instruments, or does it? Say what you like about tobacco excise, but a consumption tax should stay a general consumption tax. I can accept that others don’t think this, but is that what Labour is saying here? I’m genuinely confused. If we’re walking away from GST – then let’s walk away properly. If we no longer believe in a general consumption tax then a whole raft of policy options open up, and this still wouldn’t top the list. Personally I’m back at I/S’s quote above. I happen to support a clean (pure?) consumption tax set at a relatively low level (certainly not as high as 15%)

I’m prepared (for argument’s sake) to accept that this tax treatment could be implemented without too much compliance cost. I’m also prepared to accept that there are health benefits from getting people to eat more FF&V. But that doesn’t make me leap to conclude that this is a sound policy.

For me there are still two major points where it fails:

  1. Will it lower prices? (Will it work?); and
  2. Is this the most sensible use of money? (Is it worth it?)

I answer ‘no’ on both counts.

Let’s use Mr Nash’s own example:

After 1st October, if I buy an apple from Countdown for $1.00, the GST on this is $0.13c. Progressive Enterprises then pays this $0.13 tax it has collected to the govt. Under zero-rating of FF&V the price of this apple will not be $1.00, it will actually be $0.87c….

But Mr Nash is wrong. The price of the apple will stay at $1, and Progressive Enterprises will take home an extra 13c profit. There is no way to compel Progressive to lower the price of the apple by the amount of tax it is no longer required to pass on. They might lower it a bit, but they certainly won’t drop the 13c.

The basic principle is simple: the market will charge what the market will bear. Progressives (and Foodstuffs) will charge what they can get away with and maximise their profit. Here’s Russell Brown making the same point:

(It also seems worth noting that the in-season price differential between Grey Lynn Countdown and the Fruit World across the road from it can easily reach 10 times the level of GST. People have far more to gain from shopping wisely than from being relieved of GST.)

If price mattered as much as Mr Nash thinks, then people would shop over the road, at which point Progressive would drop their prices to get them back – clearly though, they don’t need to. So why will they drop their prices when (if) Labour make this change?  (And let’s not even go near downward price rigidity…)

I dislike this policy on a number of levels, but my bottom line is that it’s a bad use of money.

For the cost of this policy Labour could lower the bottom tax bracket; raise benefits; increase the income exemption; fund Early Childhood Education; or put together any number of proven policies which directly address the cost of living. That’s what I want to see from Labour, not pretty pictures of apples.

——

James lives in Christchurch where he works in local government.

James continues to work and think on progressive politics. His previous posts for Policy Progress were The four progressive projects and What’s so special about Generation-X?

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