Labour’s GST policy announced yesterday was clever politics. Very clever politics.
Though the policy simply called for the removal of GST off fresh fruit and vegetables and made adjustments to Working for Families some of which will apply next year and the balance in 2026, it did much more than that.
It was intended to get Labour back up off the mat and give it a chance at the election.
Labour has taken a huge hit from the combined effects of the issues surrounding Ministers Michael Wood and Kiri Allan, and the announcement yesterday was intended to move the political debate beyond them.
But there was even more to the announcement than that. It will be a key element in Labour’s attempt to define itself as a party with a very different agenda to National.
The lifting of GST off fruit and vegetables will be pitched as a bonus for those on low incomes contrasted with National’s tax cuts and their big benefits for the rich which gives Labour a chance to rehearse its slogan, “In it for you.”
But the symbolism of the GST removal is much gerater than its actual economic imapct.
Households would need a combined income of less than $50,000 a year for the GST removal to be a better deal than National’s proposed cuts.
Labour has estimated the annual savings per household from GST removal would be $216, but National is offering tax cuts of at least $800 to individual taxpayers earning $55,000 and above.
Never mind; Labour will now try to define National’s tax cuts as unaffordable perks for the wealthy while it plays old-fashioned class politics as it compares its attention to its working-class base with National’s nod to the people Michael Cullen called” rich pricks”.
As if to reinforce that they propose to pay for the foregone GST by reinstating Bill English’s 2010 removal of the ability of commercial non-residential property owners to deduct depreciation.
Robertson reinstated that as part of the Covid response.
But not only does abolishing it once again provide an easy source of revenue (estimated to be $545 million) to replace the lost GST tax but also Labour can happily point out that it will hurt only property developers and investors.
Robertson pretty much conceded that when yesterday he defined what the election would be about.
“This election year, there are real choices for Kiwis to think about, a party led by Chris Hipkins is in it for them against a guy who’s in it for himself, who wants to give himself and his mates a massive tax cut,” he said.
“They are not Kiwi values, they are not what this country is about, and that is what we have to stop on October 14.”
The possibility that yesterday’s announcement was essentially political rather than economic is reinforced by the leak a fortnight ago to National’s Nicola Willis that Labour was proposing to remove the GST.
Whether it was Labour who leaked or someone else doesn’t matter; the leak served Labour’s political purpose.
Once Willis went public, Labour was able to go to its focus groups and test the idea.
They found that 80 per cent of Labour supporters thought it was a good idea and would support it while, interestingly, 59 per cent of National supporters thought the same.
And what was undoubtedly particularly important was that there was 80 per cent support from weak Labour supporters, voters considering switching their vote to another party.
The research showed that 45 per cent overall would be more likely to vote Labour as a consequence of the policy, and 28 per cent of current National voters would be now more likely to vote Labour.
Yesterday’s announcement was carefully choreographed by the Labour campaign team to take place not in the Beehive Theatrette but in a church hall in the very-much average Lower Hutt suburb of Waiwhetu, where the median income is just very slightly more than the national median.
The hall was part of the Anglican St Paul’s parish, which for 20 years has run a vegetable co-op supplying parishioners with a tub of fruit and vegetables for $15 a week.
And the electorate, Hutt South, when it was called simply Hutt, had as its MP Labour’s legendary Finance Minister and then leader and Prime Minister, Walter Nash.
Hipkins reminded the audience of Labour Party faithful that Nash had once described Labour party policies as “applied Christanity”.
Hutt South is a marginal electorate which was amusingly demonstrated by an attempt at a pre-emptive raid on the neighbourhood by National candidate Chris Bishop, who on Saturday persuaded a number of homeowners adjacent to the church hall to have his billboards nailed to their fences.
But when Labour MP and candidate, Ginny Andersen, turned up with her billboards yesterday, the same homeowners were equally happy to have them alongside Bishop’s on their fences.
Robertson had his own chalelnge at the launch; he had to deal with his 2022 claim that once you started removing GST from particular products, it became complicated.
“You have to make trade-offs between different things, and will the benefit of that really be passed on to people?” he asked.
So yesterday, he had to eat a morsel of humble pie.
“I don’t want to present myself as any kind of saint, but I’ve been on my own road to Damascus when it comes to the announcements we’re making today,” he said.
The GST removal applies only to unprocessed food, and Hipkins was relatively easily able to bat away questions from reporters about specific iterations of fresh fruit and vegetables and whether they would attract the tax.
The only tricky one was packaged coleslaw containing dressing. It wouldn’t be eligible, but Hipkins suggested the packager might modify the product so the mayonnaise was not actually in the bag with the lettuce and other vegetables.
The other big question was whether the supermarkets would pass the foregone GST on to shoppers.
Robertson conceded that was an issue.
“I had two main concerns,” she said.
“The first of those was, would this get passed on?
“And you would have seen in the announcement today that we’re talking about the (Commerce Commission) Grocery Commissioner having that role.
We did not have that person previously.
Now they’ve got the job to do to make sure the supermarkets in particular do pass what’s in store.
“And secondly, making sure that the tax system we had was stable and sound and efficient, and I’ve been convinced that looking around the world, other countries can do this and actually doing something directly about the price of food matters sufficiently to me that we can make that change.”
Australia, the United Kingdom and Ireland do not charge value-added tax on fresh fruit and vegetables and German Agriculture Minister Cem Özdemir earlier his year proposed lowering the value-added tax on fruit and vegetables to zero.
Economists, by and large, oppose the move.
Pressed to name one who might have supported it, Hipkins yesterday could not.
There was some speculation before the announcement that Labour might really deliver to low-income New Zealand by introducing a Universal Basic Income. (USB)
Emeritus Professor of Economics at the University of Auckland, Tim Hazeldine, earlier this year proposed that we replace all of the social security and welfare transfers which total up to about $50 billion a year, with a USB of $1000 a week for every New Zealander.
But that idea is probably far too radical for this very conservative Labour Party.
Instead, it has returned to its roots with a revival of class politics. That is why Lower Hutt, Walter Nash’s old electorate, was such an appropriate place to launch the policy.
