Labour wants to take away its greatest strength.

By Peter Williams

If you want to know how stupid the Labour Party policy of removing  GST from fresh and frozen fruit vegetables is, and how complicated it will be to work out what is exempt and what is not, consider the case of coleslaw.

Cabbage and carrot sliced up in a plastic bag will be exempt, but if you add mayonnaise to it won’t be, because the coleslaw will be deemed to have been processed.

Um .. wasn’t cabbage and carrot processed to become coleslaw in the first place?

And what if the mayonnaise is in a sachet?

This is the sort of nonsense the Grocery Commissioner will have to address. Good luck to Pierre van Heerden trying to unpick the loopholes he might be laden with.

But this issue is more of a problem. I will try and be an amateur accountant. Here’s an example.

A supermarket buys in a bag of carrots for 5 dollars, including GST of 65 cents. The supermarket then sells the carrots for 6 dollars, including GST of 78 cents.

Now you think as the buyer of the carrots, you will be exempt from paying 78 cents.

But under tax law, the 65 cents GST the supermarket paid to buy the carrots is written off against the 78 cents GST you paid to buy them.

Therefore the supermarket owner is only required to pay 13 cents GST.

So are you and me, as buyers of carrots at 6 dollars a bag getting a GST exemption of 78 cents or 13 cents?

Surely it can only be 13 cents. Because if the supermarket can’t recover the GST it’s paid to buy the carrots, that’s not fair.

After all, every other stage of the carrot production and distribution process has to pay GST on inputs like fuel and fertilizer and transport which can be partly written off by the outputs – as in selling the carrots to the supermarket shelves.

The supermarket can’t be left carrying a full  GST obligation so will charge the customer for it.

Therefore instead of a 6 dollar bag of carrots reducing to a GST free $5.22, it will only reduce to $5.87, a saving of 2 percent.

See what a ludicrous policy this is?

The GST saving per item will be dependent on the supermarket’s markup of a particular item.  Considering supermarket produce is high volume low margin, the savings per item are likely to be miniscule, like in the region of 1 or 2 percent.

Chris Hipkins reasoning that because Australia does this, we can too is illogical. Australia digs up its coal and makes billions exporting it.

Why don’t we do that Chris?

The best thing about our GST system is its simplicity.

When Labour lose this election that simplicity will remain.

For more from Peter, listen to Pete's Ponderings on RCR.