Guest Post: The supermarket thing
A guest post by Ian Boag:
Anyone fortunate enough to own a Pak’N’Save or a New World has an annual income measured in millions. The business model is relatively low margin (4% after tax) plus rebates (maybe 2% or so) for a total of maybe 6% – on a turnover of $100m that is a few millions. Nice for them. There are some novelties about how you get there – eg I can’t just rock up with $10m and tell Fred I want to buy his New World. Even if he likes the number – he can’t sell it to me. And if I already own a New World I can’t buy a Pak’N’Save as well.
Co-op rules and all that – it is what it is. A “worthiness” check. It would be novel if Fonterra worked that way …
When a small non 4-square grocery gets to buy stuff retail from Pak’N’Save for less than what the (Foodstuffs) wholesaler will sell it for you can see that small non Foodstuffs groceries don’t have much future.
The bottom line is that knocking 50% or whatever out of that tsunami of owner income might drop prices at the till by maybe 3%. Not enough to get excited about. So anyone who wants to make the supermarkets less profitable and give significant savings to customers – by splitting this or that – be that Chris, Chris, Nicola, Chloe or Winston – is just pushing shit uphill.
All these creative ways to supposedly improve competition and lower prices are hot air and the only real option is to just suck it up.
The only action that would dent it is to take GST off food and have that passed along. The “what is food?” argument could be dealt to by adopting the Australian classification list. There would be a few classification grizzles that would be dealt with relatively quickly (the Aussies dealt with their big ones a long time ago) and probably an ongoing dribble of complaints that would not really amount to a lot. The Australians have had 25 years to sort it out. All their big ones were sorted years ago. There will always be a few funnies (hot pie vs cold pie) but they don’t amount to a hill of beans in the scheme of things.
Maybe it is unfair (?) that high earners would get much of the benefit because they spend more on food. I’ve seen numbers that suggest a 2% tweak in the top income tax rate would equalise that and fix the revenue loss. Low income earners would be significantly better off and high income earners would be relatively unaffected – savings from GST removal balanced by a small tweak in their top income tax rate. Whatever.
I can afford the supermarket prices, so they don’t keep me awake at night. I am just suggesting that removing GST from food is the only lever available to reduce prices significantly within a reasonable timeframe. It could be done quickly, unlike the other ideas being floated. To be pernickety about it, food would be zero-rated rather than exempt. A technical issue.
We can go on forever debating break-ups, economies of scale, concerns about foreign investors, lockups of suitable land – yadda yadda – and any consequent changes would take years. Probably a Royal Commission, appeals, and more. Years and years. The Think Tanks would pontificate. The legal profession would do well. Every man and his dog would pile in. Years and years and years.
GST off food would essentially be “now” …. but the ideological purity of “GST on everything” seems to be more important. Economists at the OECD praise NZ and they would know. The rest of the world is taking a while to catch on but we lead
To be clear – all I am saying here is that zero-rating food with a small tweak to the top tax rate would be more or less revenue neutral for the government, help those at the bottom and not be all that punitive to those at the top because they benefit more from the cheaper food. Far simpler than targeted benefits here and payments there and whatever.