Why we should keep a no exemptions GST

March 28th, 2012 at 2:00 pm by David Farrar

The Telegraph reports:

George Osborne has been mocked by MPs over his “pasty tax” after it emerged people could avoid paying VAT on hot baked goods if they wait for them to cool in the shop.

These are the sort of stupidities you get when you don’t have a clean like we have in NZ. Labour’s pledge to exempt fresh fruit and vegetables was bad public policy, and will lead to situations like the above. For exampel frozen peas might have on them, but if you waited to thaw them, then would they be exempt?

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29 Responses to “Why we should keep a no exemptions GST”

  1. aitkenmike (94 comments) says:

    I would prefer to add food as a whole to the GST exempt category (similar to residential housing). Little to no cost, and a great deal of benefit to those on a lower income.

    Completely agree with you on the merit (or lack of) in trying to specify ‘healthy’ food, or types of food, exactly for the examples you state.

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  2. kowtow (8,470 comments) says:

    What about a tax on a tax. GST on rates is bollocks.

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  3. krazykiwi (9,186 comments) says:

    I’d like a GST exemption on frozen MPeas :)

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  4. seanmaitland (500 comments) says:

    While what DPF says is a good point, the main reason having any sort of exemptions on GST is absolute stupidity is because it ends up costing more to implement than it actually saves – so in the long run everyone ends up paying more even though they think they are paying less.

    @aitkenmike – that completely defeats the purpose of having GST in the first place – you may as well just get rid of it, as not having it on food would still introduce a lot of unecessary complexity and be expensive to implement and to audit.

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  5. wreck1080 (3,912 comments) says:

    Non-uniform GST creates economic drag by reducing productivity .

    So you save $15 GST a week off your grocery bill.

    The supermarket increases their prices by $2/week to cover GST administration costs.

    The government still needs that lost $15 for education ,welfare, and health etc , so they increase other taxes by $15/week to claw back the loss.

    Net effect, while you saved $15 in gst, you are paying out $17 in other increases. This is why productivity is so very important. A loss in productivity hurts everyone. ie ,no winners.

    This is why I believe in flat income tax too.

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  6. Graeme Edgeler (3,289 comments) says:

    For exampel frozen peas might have GST on them, but if you waited to thaw them, then would they be exempt?

    No, unfrozen frozen pees are not free fruit or vegetables.

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  7. Graeme Edgeler (3,289 comments) says:

    free = fresh. D’oh.

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  8. david (2,557 comments) says:

    Neither are my pees it is worth noting.

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  9. wreck1080 (3,912 comments) says:

    @kowtow —“What about a tax on a tax. GST on rates is bollocks”

    Some councils include trash collection in the rates and other councils make you contract to a private trash collection operator.

    Why should a rate payer not pay GST on Trash collection when it is included in rates, but, a ratepayer in another city must pay GST for trash collection when it is contracted out by the council?

    For every argument you make as to why GST is a tax on a tax I can make another argument to show it is not.

    Simplicity is the goal and as soon as you begin making exceptions the total cost goes up.

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  10. Pete George (23,562 comments) says:

    No, unfrozen frozen pees are not fresh fruit or vegetables.

    What about coolstored fruit or vegetables? At what temperature does it become non-fresh? I bought some apples recently that were disappointingly unfresh, and I don’t think they’d been frozen.

    But I have picked apples in a frost – fresh or not? Maybe sub-zeroing them before they get picked would make a difference?

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  11. Graeme Edgeler (3,289 comments) says:

    If something is in exactly the same form as when it came off a tree (or was dug up from the ground) and you are purchasing nothing else with it, then it is fresh.

    A half pumpkin? Now there’s a question.

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  12. Pete George (23,562 comments) says:

    Apples and potatoes are washed. Many fruits are chilled. Bananas are debunched and climate controlled. Nuts are shelled. Peas are podded. Milk is pasteurised. Carrots are topped.

    Many foods are not exactly the same form as when they were harvested.

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  13. Graeme Edgeler (3,289 comments) says:

    What about coolstored fruit or vegetables? At what temperature does it become non-fresh?

    It’s not about the fact it has been cooled. The reason frozen pees do not count as fresh is because the pees have been:

    1. de-podded
    2. par-boiled
    3. vacuum-sealed in plastic

    not sure about the first, but either of the other two is enough to make it so something isn’t “fresh fruit or vegetables”.

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  14. Bevan (3,924 comments) says:

    Washed potatoes?

    — edit: Pete beat me to it.

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  15. Graeme Edgeler (3,289 comments) says:

    Milk is not fresh.
    Bananas are.
    Apples and potatoes are.

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  16. Graeme Edgeler (3,289 comments) says:

    removing dirt from potatoes by washing them does not make them not fresh.

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  17. alwyn (424 comments) says:

    When they brought in VAT in Britain they exempted children’s clothing. Sounds pretty reasonable doesn’t it?
    The problem was that about the only way they could define “children’s” was by their size, which in the case of girls skirts meant from waist to hem. In the 60’s, when mini-skirts got really mini, they were mostly shorter than the definition and qualified for the exemption. As you say any exemptions at all are crazy.

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  18. Graeme Edgeler (3,289 comments) says:

    I don’t support a fresh fruit and vegetable exemption. And I don’t dispute that having exemptions can lead to massive problems about definitions that lead to really stupid results (like waiting for your pastry to cool down).

    I just dispute that a “fresh fruit and vegetable” exemption is an exemption that would cause those sorts of problems.

    I do not believe you will come up with an item that will stump me (unless, perhaps, I have no idea what it is).

    The most difficult one I can come up with is a plastic-wrapped half a pumpkin, and I think I have to conclude that this wouldn’t count.

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  19. muggins (3,722 comments) says:

    I say keep it simple,the way it is now.Don’t try making exemptions,that will lead to all sorts of anomalies.What’s more ,the gst rate would probably have to go up,to compensate for any exemptions.The government wouldn’t want the gst take to decrease.

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  20. Pete George (23,562 comments) says:

    If half a pumkin wouldn’t count (I agree it probably wouldn’t unless specified) what about lettuce with the outer leaves removed? Or does one lettuce leaf count as fresh and complete like one banana from a bunch counts as ok? They’re a similar sort of structure.

    Cool stored (often for many months) is not fresh but I understand why it might be classified as ‘fresh’.

    Pumkin seeds versus sunflower seeds?

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  21. pq (728 comments) says:

    So dudes,
    we can not do a gst exemption on health food, but we can do a gst exemption on financial transactions.
    Only people like Roger Douglas and John Key could see the opaque transparency of this.
    It will eventuate in our country that we do a non gst on food good, and we will also do a tax on financial transactions.
    It is only a matter of time
    Here is to you my friend Owen McShane, good friend to our Country.
    peter quixote

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  22. jims_whare (403 comments) says:

    Graeme, exemptions are good in theory if you look at individual veges/fruit in isolation.

    However in our integrated/specialized food production system you would have a lot of anomalies which would arise from the classification of various states of fruit/veges.

    For example, a pea grower who sells his fresh peas to Watties for processing. He would not be able to charge GST on his pea sales as they would be exempt, however many of his costs (Fertilizer/Sprays/Insurance/Admin/Transport etc.) would attract GST which he would be obliged to pay.
    In order to cover this additional cost surely he would charge extra to Watties (if he had enough market clout) which would be passed on to the end consumer OR he wouldn’t be able to charge Watties extra and so would have to accept a lower profit margin which could affect the viability of his business.

    Either way this is not a good outcome for either the grower or end consumer.

    Then look at Watties. They would receive these fresh, GST exempt peas, process them and sell them as frozen peas.
    This would cause them as lot of headaches as at what point in the process does GST kick in? Can Watties claim GST for all expenses related to processing the peas or just the expenses after they have been shelled/cooked/frozen etc.

    They would have to be able to prove this to the IRD’s satisfaction which wouldinvolve screeds of paperwork and accountants.

    Also milk could not be included as it is neither a fruit or vegetable. If it were included then even raw milk could not be included as after it is collected from the cow it is artificially cooled and mechanically stirred, again changing it from its natural state so would have to have GST plonked on it.

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  23. cows4me (248 comments) says:

    the whole GST thing is horseshit, a racket and a huge waste of productive time. Why the fuck should we be tax collectors for the government. You claim on this, you can only claim so much on that, make sure it’s under the right code, keep a log book, make sure the form is has been sent to the SS in time. Like most taxes imposed upon the people it’s not that easy or simple, the accountant has to go through it all at the end of the year and of course this generates more GST when you pay the bloody bill. Just fucking once in my life I would like to see a simple tax system that most but the mentally retarded could understand but no a fair percentage of the population would be looking for new work and politicians couldn’t play favourites.

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  24. gander (91 comments) says:

    I am against creating any more exemptions from GST.

    Well, almost any more exemptions.

    Consider @alwyn at 4:27 PM.

    Any exemption that reduces the price of really short skirts is worth considering.

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  25. wreck1080 (3,912 comments) says:

    @cows4me

    Much of the accounting you do for GST feeds straight into year end accounts anyway. I personally find this helpful.

    And, GST is quite an elegant tax as far as taxes are concerned.

    Perhaps we should abolish income tax and rely solely on GST?

    Or, are you complaining about paying tax at all?

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  26. GJ (329 comments) says:

    But why do we have a GST exemption for goods coming in from overseas if the value is below $500.00. Makes it very hard on our local retailers.

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  27. gump (1,647 comments) says:

    We have an exemption on overseas mail order goods because the cost of creating the customs entry and collecting the GST would cost the Government more than was collected.

    The de minimis threshold on imports is $60. This equates to GST on a $400 import (not $500).

    If local retailers can’t compete then they’re not offering value to their customers. The money that I save on buying things online isn’t wasted – it gets invested into productive enterprise.

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  28. Paulus (2,627 comments) says:

    Our GST system is the envy of the world – leave the bloody thing alone.
    Having been involved both with the UK move to VAT, thence a sectional committee in the design of GST all these things were argued (to put it mildly) at the time.
    KISS.

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  29. freethinker (691 comments) says:

    Wreck – 1080 No Gst on rates is much easier to deal with than Gst on rates, whilst it makes no difference to the amount of tax required at least it is honest and transparent if Govt made it clear that the necessary tax increase elsewhere is to recover the lost revenue, but then Govt is seldom honest or transparent.

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