Via Dim Post, No Right Turn mentions an article from Werewolf.co.nz by Gordon Campbell. The article supports the idea of exempting GST on food. There were a number of interesting facts, I definitely enjoyed the articles.
However, even if all the premises are correct and even given significant social justice goals, I think we have to be clear regarding why we think an exemption is the way to go – and in the end I still disagree regarding any exemption.
Lets assume there is a negligible administration cost from removing the tax on certain types of food. Even given the lack of a cost why are we taxing one good differently to another here?
The justification used is that GST is a regressive tax – well it isn’t in standard terms. In fact it punishes those with more volatile income, not with lower lifetime income. The more apt justification used is the fact that the poor spend more of their income on food. However, in this case we are merely saying we want to give more money to the poor directly rather than indirectly. If we think the income of our lowest citizen is too low as a society, we should transfer income to them – not fiddle with prices. As a result, I do not agree with doing this on the basis of social justice – if this is what society wants just increase income transfers!
The only reason we would want to cut the GST off food is if we decided we wanted the relative price of food to be lower. In the piece it is mentioned that if we cut the price of supermarket food the consumption of healthy food goes up. Accepting the strong relationship they find (although, I would like to see the study directly – given the magnitude of the lift) we could justify some cut in the GST on supermarket food if we felt there was an externality from the consumption of healthy food. Essentially this is the a fat tax vs non-supermarket, fattier foods.
Now for a fat tax (or non-fat subsidy) to work, we need an incredible amount of targeting. This will either lead to a much larger administration cost (and the govt. hires people to look around and check things) or a significant increase in tax avoidance (by “recategorising” foods). In order to adjust the relative price of food types, we have to accept that administration issues will become important!
As mentioned earlier, the fat tax is at best a second best option – in reality the problem stems from the governments refusal to make hospital policy in line with social values.
Given this, I would be against arbitrarily imposing a “anti-fat subsidy” through the guise of a cut of GST on some foods even if the administration cost was very small.
Not a fat tax?
Now it doesn’t appear that the study actually looked at a fat tax. From the article we have:
The main findings from the survey? People, Blakely explained, kept on buying almost the same amount of saturated fats, regardless of the price and regardless of the educational material they were given. However, they used their 12.5% price discount to buy a significantly higher amount of healthier foods, and were still doing so at the end of the survey.
So a 12.5% drop in the price of supermarket goods lead people to buy A LOT more healthy stuff. Four things:
- This does not take into account what people spent their “higher income” on outside the supermarket. Could it be that higher real income lead to more takeaways. Without a more detailed look at incomes this is tough.
- What income group were these shoppers? Given that the relative price of goods INSIDE the supermarket were unchanged, why doesn’t a standard boost in income lead to this sort of massive increase in healthy food consumption (makes me suspect) – and why don’t we see these huge benefits overseas when they do have lower GST on food.
- Incidence of tax. If demand for healthy foods rises on the back of a cut in price, we will see the price of healthy food fall LESS than the price of unhealthy food. This will cancel out some of these gains (even if they actually attempt to occur).
- I would seriously like to take a closer look at the data in this study, as it is hard to tell exactly what they did solely from an article that mentions it.
Now, even if these huge estimates of the benefits of moving GST away from food are true I am forced to ask, what is the social benefit of the individuals actions here? I understand that eating better is great for the person, however this choice set for the person could be achieved by giving them more money in the first place.
If a person then decides to spend any additional income on an xbox instead of healthy food THEY ARE SAYING they value Halo more than a longer healthier life. Good for them – if it is that good maybe I should play Halo one day too.
The government should only subsidise if there is a social benefit – and again we come down to the second (at least) best world of it being like a fat tax.
And as I said earlier, I would be against arbitrarily imposing a “anti-fat subsidy” through the guise of a cut of GST on some foods even if the administration cost was very small.