Foodstuffs has recently defended the price differences between New Zealand and other OECD countries, emphasising the impact of the Goods and Services Tax (GST) on food prices.
New Zealand imposes a 15% GST on food items, while many other countries either have lower rates or exemptions on essential groceries. For instance, Australia exempts GST on various food categories, including meat, dairy, and certain cooking ingredients. Similarly, the UK and Ireland do not charge GST on most grocery items.
Foodstuffs’ managing director, Chris Quin, pointed out that when comparing, it’s crucial to consider the GST included in New Zealand prices. He noted that if New Zealand had similar exemptions as Australia or the UK, prices for a basket of products at Pak’nSave could potentially be lower than in those countries.
He highlighted the importance of taking all costs into account when making comparisons.
“To be clear, this is not a call to remove GST from food in New Zealand, as we think our simple low-cost tax system makes sense,” Quin said.
“But it is important to be conscious of all factors at play when comparing prices here to overseas.”
GST was introduced in 1986 as part of broader economic reforms aimed at stabilising the economy. The initial rate was 10%, which was later increased to 12.5% in 1989 and subsequently to 15%.
The primary aim of GST is to generate revenue for the government. The 15% rate helps fund public services and infrastructure, contributing significantly to the national budget.
Adjusting the GST rate allows the government to respond to economic conditions and balance the economy during challenging financial times.
New Zealand’s GST system is characterised by a broad tax base with few exceptions. Unlike many OECD countries that have reduced rates or exemptions for essential goods, New Zealand applies GST uniformly across most goods and services.
Moreover, the New Zealand GST system is designed to be straightforward, which reduces administrative costs for businesses and the government. This simplicity also makes compliance easier compared to more complicated systems in other countries.
Despite the perception of being high, New Zealand’s GST rate of 15% is actually below the OECD average of 19.2% as of 2022. This indicates that while the rate may seem substantial domestically, it is relatively moderate on an international scale.