Labour's GST-free fruit and vege strategy falls foul of the experts

"Some of the tax purists will say that we should not do this... they are not the ones who are struggling" - Chris Hipkins

Set the table for bread and butter - or in this case, fruit and veg: Labour fired its opening election campaign salvo on Sunday with a starkly populist pitch for tax-free produce.

The party is pushing ahead with the long-rumoured policy despite hiccups in the announcement and near-universal opposition from experts - including in its own ranks: a clear sign the party is putting polling ahead of principle. 

It was the week Labour woke up to the election. From his home turf in Lower Hutt, Labour leader Chris Hipkins announced the plan to cut GST from unprocessed fruit and vegetables - a cost-of-living balm in tough times. 

Eating your greens went down a treat with supporters, and a poll last month from Talbot Mills - Labour's pollster - found two-thirds in support. Critically, 80 percent of swing voters supported it, and nearly 70 percent said they'd be more likely to vote Labour as a result. A balm, then, to Labour's sliding poll numbers too. 

The policy runs counter, however, to expert consensus - including members of Labour's caucus - who have long rubbished the policy, tax theory and international evidence showing it would be little help to those struggling and impose new, expensive burdens on the tax system. 

RNZ spoke to 12 tax policy experts and economists: the closest to a supporter that could be found was a former advisor to Finance Minister Grant Robertson saying it should be considered - but it wouldn't be his first choice. 

Hipkins says the policy's not intended to help tax experts - but the government's own tax working group had highlighted that only a small portion of savings from removing the tax would flow through to lower prices at the checkout, the majority ending up instead in the pockets of supermarkets and producers. As an untargeted measure, the small savings that do get passed on would be of more overall benefit to the well-off: an inefficient way to help the needy, considering the cost to the taxpayer. 

There's also the question over what's included: basil in a pot? bulbs of garlic? Hipkins himself struggled to answer on Monday when Newshub's Lloyd Burr arrived to the post-Cabinet briefing with a supermarket bag full of such questions. Hipkins said it would be worked through by a new advisory group, but other countries have seen these quandaries result in lengthy, costly court cases. 

If enacted, it also begs the slippery-slope question: why aren't other necessities - foods, sanitary products, toilet paper - also exempt? By then of course, it would be nigh-impossible to roll back, as other jurisdictions have also found. 

"To be perfectly honest, I think it's one of the worst ideas I've heard for a while," said Victoria University professor of taxation. "We're being called 'an outlier', however I think pretty much every other country in the world would look to us and say that we have a system which is far preferable."

Read more: 

• Tax experts respond to GST-free fruit and vegetables: 'Populist' and 'stupid'
• Labour's policy of removing GST from fruit and veges slammed, but voters support it
• Labour stands by publicly released GST policy costings
• GST off fruit and veg: what would be covered, what would not
• Labour's tax plan: GST-free fruit and veg, boost for Working for Families

Several of Labour's own MPs - particularly those with close involvement in the tax system - are keenly aware of these concerns. Finance Minister Grant Robertson who had called it a "boondoggle" to administer, now says boondoggles can be "worked through". He describes his change of heart as a road-to-Damascus moment. 

Associate Revenue Minister Deborah Russell - then a tax lecturer - tweeted in 2016 the biggest benefit went to people buying off-season mangoes. Then there's David Parker - who quit as Revenue Minister last month, telling reporters it was "untenable" for him to continue, after Chris Hipkins ruled out a capital gains or wealth tax. He's on the record in 2013 acknowledging GST-free food creates confusing and exploitable loopholes - and, asked this week if he thought the plan would work, did not give an answer. 

National has been more than happy to exploit the impression this all gives of a party at odds with itself and putting political expediency first. Its criticism was certainly expedited - with Finance Spokesperson Nicola Willis weeks beforehand claiming to know Labour would go with GST-free, implying she'd been leaked the details. It certainly gave National and the media plenty of time to prepare. 

This was not the only stumbling block. Labour had released the policy to reporters early to give them time to examine it - a common practice. Having used costings for a different timeline, the party quietly updated it by the time of release - but failed to notify the media to the error, or the correction. In the end it was Willis who pointed the discrepancy out the following day as another potential "hole" in the finances. 

For Labour, this tax plan - doubtless planned as a momentum-building campaign kickoff - got off to a stumbling start. It may prove a lesson for Hipkins not to rely on a policy's superficial appeal to win the election. 

Now he must explain his plan - and defend it - through eight weeks of campaigning.

In this week's Focus on Politics, Deputy Political Editor Craig McCulloch assesses the political calculus behind Labour's vote-grabbing GST policy.  

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