Election 2023: Brad Olsen says Labour's GST policy puts economic credibility at stake

A leading economist has slammed Labour's promise to scrap goods and services tax (GST) from fresh and frozen fruit and vegetables, saying it completely ignores evidence around tax policy.

Labour leader Chris Hipkins on Sunday confirmed the party would run at the election with a tax policy that included removing the goods and services tax (GST) from fresh and frozen fruit and vegetables.

The GST policy, if Labour is elected, would save an average household about $4.25 per week from April 1 next year.

Infometrics principal economist Brad Olsen had a scathing review of Labour's plan to scrap GST from fresh and frozen fruit and vegetables.

"It's disappointing to see this sort of policy rear its head again and be taken seriously," he said.

"It sort of abandons some of the economic credibility that's been built up over time in the tax debate and let's be clear, it completely ignores the evidence around tax policy and around the support that people want."

Olsen told AM Early while the policy sounds good, it won't actually help much.

He told AM Early host Nicky Styris overseas evidence shows Kiwis won't get the $4.25 back that Labour claims Kiwis will get from the policy.

"Everyone, funnily enough, universally thinks it's a good policy, but that's because they think they're going to get that money back. They think they're going to get that $4 a week, a pretty small amount to start with, but we know from the evidence that's not likely to be the case," he said.

"That reduction in GST paid is not likely to be fully passed on to consumers. We've seen when the UK, for example, removed their version of GST off eBooks, you go forward a few years, eBooks are more expensive than they were before, there was no actual reduction in that tax.

"We saw as well the likes of period products in the UK when they had their GST rating changed, again, only about 20 percent of the change was actually passed on to consumers."

Labour says the new Grocery Commissioner will be able to check retailers actually pass on the removal of GST from the products to consumers

"The Commissioner has powers under the Grocery Industry Competition Act 2023 to require information and reports from supermarkets on matters such as their prices and margins," a Labour policy document says.

"They can also proactively issue guidelines laying out their expectations. The Grocery Commissioner will receive and investigate complaints. We will ensure they are able to get under the hood and report publicly to ensure benefits are passed on by supermarkets."

Olsen told AM Early the reason Hipkins proceeded with this policy is because it's a "very politically popular" policy.

He believes the policy is actually going to help people who don't need the extra support like millionaires.

"We know removing GST removes it for everyone, millionaires, people who obviously don't need that support and because those households actually spend a lot more dollar for dollar on the likes of fruit and vegetables, those upper-income households actually get a lot more from this policy on a dollar basis," he said.

"Now, if you really wanted to design a policy that at least tried to target people a bit more, you literally could have taken the $500 million cost of this policy and just given the lowest half of households that money in pure cash, give them a $20 note and they would have got more from this policy than what the GST removal is taking."

Olsen told AM Early the reasoning given by the Prime Minister about why they're proceeding with the plan isn't "sound policy advice."

"It's challenging to look through those figures and also to hear from the leader of the Labour Party that New Zealand is an outlier and therefore we should get in line with the rest of the world," he said.

"The rest of the world tells us that New Zealand's comprehensive and clean GST system is the envy of everyone else. It reduces the costs and the complexities and it sort of says that the All Blacks were always winning, but the rest of the world's teams were losing every now and then that we should bring themselves down to their level - that doesn't seem like sound policy advice."

Watch the full interview with Brad Olsen in the video above.