Right: Peter Costello, the Treasurer who brought in the Goods and Services Tax, does his shopping on the first day of GST - July 1, 2000
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Arguments against charging a GST on fresh food
1. A GST in fresh food would disadvantage those on low incomes
Opponents to the GST being imposed on food point to the fact that consumption taxes are generally 'regressive', that is, take a larger percentage from low-income people than from those earning high-incomes.
Those on higher incomes spend a smaller percentage of their personal wealth on items such as food than do the unemployed and the poor. Thus the impact of a consumption tax on necessities is far greater on the economically disadvantaged than it is on the wealthy.
This point was made by Greg Jericho in an article published in The Guardian on October 30, 2014. Jericho explained, 'Regardless of what you earn, you pay the same amount of GST on an item. And because poorer people spend more of their income on goods and services than do wealthier people, a GST is invariably regressive - it hurts you more the less you earn.'
In an article published on the ABC's opinion site, The Drum, on May 26, 2014, Mungo MacCallum stated more vividly, 'Ten per cent of a grocery bill...is bugger all to someone on $100,000 a year, but for a single mother on Newstart it can gouge a huge hole in the weekly budget.'
An Australian Bureau of Statistics survey for the financial year 1993-4 showed that low income earners spent five times as much of their income on food as people in the highest income quintile.
Public Health Association of Australia president Heather Yeatman has stated, 'Not only will they [poor households] be more affected by a change in the GST on basic foods because of their lower income, but also because it is where most of their food dollar is currently spent.'
The Victorian premier, Daniel Andrews, has stated, 'The Goods and Services Tax is not a fair tax because it has no regard for a person's capacity to pay... and it won't be made any fairer by putting it on food, the absolute staple of life.'
2. Compensation to low income earners is not reliable and unlikely to be sufficient
It has been argued that placing the GST on fresh food would have an adverse effect on low income earners and the poor, even if compensation were offered.
The 10 percent increase in the cost of fresh food would remain a constant. Any government arrangement to reimburse those relatively most disadvantaged by an increase in food prices, such as pensioners, the unemployed and low income earners, would be subject to change. The situation in New Zealand has been used as an example of this.
New Zealand introduced a GST in 1987 which included most consumables, including fresh food. The effect of this on low income earners was meant to be mitigated by a compensation package. However, these compensations were subsequently removed in across-the-board welfare cuts in 1991.
Critics claim a similar situation exists in Australia. Former leader of the Democrats, Meg Lees, whose party co-operated with the Howard Government in the introduction of the GST in 2000 has stated, in regard to any future extension of the tax, 'I don't trust incoming governments will leave the compensation in place.' Ms Lees has criticised the 2013 federal budget for removing welfare compensations which were part of the original agreement that saw the GST go through Parliament. Ms Lees has stated, 'The government is taking away the compensation we put in.'
It is also noted that even if there are trade-offs offered to the taxpayer in the form of reduced income tax, these would be of no benefit to pensioners and the unemployed. Similarly, reductions in company tax would be no compensation to pensioners, though they might reduce the number of unemployed.
Changes made in the last federal budget will result in a relative decline in the value of the aged pension. From September 1, 2017, the age pension will be linked to CPI alongside other welfare benefits such as the Disability Support Pension, the carer payment and veterans' affairs pensions. The CPI is typically lower than the average male weekly earnings, which means that over time the value of the age pension and the other pensions listed above will fall.
In an article published in The Financial Review on May 14, 2014, it was noted, 'Indexing the age pension to the consumer price index (CPI) rather than average male weekly earnings will erode the value of the benefit by thousands of dollars over the next couple of decades.'
Critics of placing a tax on fresh food have argued that the combined effect of a decline in pensions and an increase in the cost of food will be particularly detrimental to the wellbeing of the elderly and others who are dependent on pensions.
3. A GST on fresh food would harm public health
It has been claimed that placing a tax on fresh foods would boost their cost and thus increase consumption of unhealthy processed foods.
Health groups have rejected the idea that the GST be applied to fresh food, warning that such a change would worsen obesity rates and chronic disease.
Whereas most processed food is covered by the GST, fresh fruit and vegetables, meat, eggs, bread, some dairy products and other basic items were exempted from the tax under a 2000 deal between the Howard government and the Australian Democrats.
Researchers from the University of Queensland in 2013 estimated that applying the 10 per cent GST to fresh food would reduce fruit and vegetable consumption by about 5 per cent, and would produce an additional 90,000 cases of heart disease, stroke and cancer in the Australian adult population.
Public Health Association of Australia chief executive, Michael Moore, has argued that applying the GST to fresh food would be 'short-sighted' because it would lead to higher rates of obesity, heart disease and cancer which would place an additional burden on the health system.
Moore has stated, 'What we know is that unhealthier foods are getting cheaper and the healthiest foods are already more expensive. Exacerbating that by putting a GST on food would just create much more expense in the long term.'
Jane Martin, the executive manager of the Obesity Policy Coalition, has said that applying the GST to fresh food would be a 'backward step' because it would undermine efforts to encourage healthy eating.
Ms Martin noted, 'Price signals are really critical to the decisions that people make. We need to encourage all people to eat more fresh fruit and vegetables but particularly those on low incomes.'
The National Heart Foundation's chief executive, Mary Barry, has reacted similarly. Ms Barry has claimed that only one in 14 Australians ate enough fruit and vegetables, while one in four adults reported eating no vegetables regularly, and four in 10 did not regularly eat fruit.
Ms Barry stated, 'We're concerned that a GST on fresh food would prevent people from buying fresh food and send them off in other directions.'
4. A GST on fresh food would harm primary producers
The Australian farming sector is concerned that it will be adversely affected by a GST on fresh food. The concern is either that consumption of fresh food will drop in response to increased prices or that large scale retailers such as Coles and Woolworths will expect farmers to absorb the tax by being paid less for their produce.
The National Farmers Federation (NFF) is critical of any attempt to place a GST on fresh food.
The NFF's chief executive officer, Simon Talbot, has stated, '"We want Australians to eat more fresh food, not less. Increasing the cost of food could mean consumers demand less fresh fruit, vegetables and protein, leading to a decrease in overall sales and poorer health outcomes.
The reality is that the retailers aren't going to forego profit. This means that farmers are likely to be forced to absorb the increase in costs. They are not able to pass on their costs.'
Tasmanian Farmers and Graziers Association has also condemned any attempt to place a GST on fresh food. The Association's chief executive, Jan Davis, has argued, 'If a GST on fresh food were imposed, a worst case scenario could see retailers increasing the price to consumers and at the same time decreasing the payments to farmers and other suppliers.'
Ms Davis went on to claim that if farmers had to underwrite the GST by taking cuts in prices from wholesalers and retailers 'you are banging nails into the coffin of this industry'.
When a proposal to place the GST on fresh food was made in May, 2014, it met with a similar response from spokespeople for the farming sector.
The National Farmers Federation president, Brent Findlay, stated, 'We wouldn't want to see an increase in the price of food while seeing less being paid back to the producers.'
The president of Australian Dairy Farmers, Noel Campbell, argued that a GST on fresh food could see farmers alter their production patterns, moving away from food production and thus decreasing Australia's food security by requiring greater reliance on imports.
Mr Campbell has stated, 'We think raising the price of fresh food would put producers in a position where they would look to other, less nutritious options.'
5. There are other means of increasing tax revenue
It has been noted that there are other means of increasing tax revenue without placing an indirect tax on fresh food.
The World Health Organisation (WHO) recommends governments consider different economic tools (such as taxes and subsidies) to improve the affordability of healthier foods and discourage the consumption of less healthy options.
Several countries have recently adopted new taxes on unhealthy foods in line with these recommendations. From 2013, Mexico has introduced a 10% tax on sugary drinks and a 5% tax on unhealthy snack foods. Hungary has introduced a tax on unhealthy foods. In January, 2012, Hungary implemented a law imposing special taxes on foods with high fat, salt and sugar content.
Estimates suggest that if Australia were to increase taxes on unhealthy food by 10%, this would greatly benefit health and result in substantial cost savings to the government.
There are also a range of other taxes which the states impose directly and which they might increase. Payroll tax is one possibility. Transferred to the states in 1971 as a growth tax, the states have eroded the base of payroll tax through the years by providing exemptions for small businesses. The states could remove some or all these exemptions and increase their revenue.
There is also the possibility of imposing across-the-board land taxes, which would be an efficient means of tax collection. The states could also enter into a discussion with the commonwealth about imposing state surcharges on income taxation, a common practice in many federations around the world. Tax concessions on negative gearing and superannuation contributions could either be reduced or removed. There is also the possibility of raising income and company taxes, rather, than is currently the case, suggesting the possibility of reducing them. Finally, the GST could be applied to online purchases worth less than $1000. These are currently exempt.