GST policy could be heading to food folly

POLICY makers need to think carefully about the consequences of defining what type of food should be exempt from a GST.

The recently released Democrats’ policy does nothing to solve the problem of defining food for the GST.

Indeed, the Democrats’ claim to have solved the problem of defining food could not be further from the truth. In fact, it actually shows us exactly why food should be included in the GST.

You only have to look overseas to see there are no simple definitions that will solve the problem of defining food.

Let’s consider the following list of questions, which outline the complexity of the issue:

• Under the Democrats proposal, fresh fruit will be GST free but does that mean any packaged or tinned fruit will be taxed?

Won’t that disadvantage some rural areas where supplies of fresh fruit are limited? Will Australia be like the UK and declare toffee apples to be fresh fruit as the product is mostly an apple?

• If dairy products are GST free, what about soy milk and goatsmilk/cheese? Does that mean people with special dairy free diets have to pay a higher tax rate? Is flavoured milk a dairy product?

• Packaged food will be taxed as it is ‘effectively a takeaway’ but what does packaged mean? Would frozen peas be taxed, or what about cheese slices, and what about a frozen pizza?

• Cooking ingredients are to be GST free but bicarbonate of soda is also a cleaning agent. Does that mean the retailer has to ask you what you are going to use it for?

And what about salt? At the moment, if it is used in cooking, it is exempt from sales tax. If it is used in swimming pools, it is taxed at 22 percent.

• Meat is to be GST free but prepared foods are not. What does this mean for meat skewers prepared in a honey dressing bought from a butcher?

• Confectionery will be taxed but does that follow the current wholesale sales tax definition that took two years to decide the tax status of frozen yoghurt? Are biscuits confectionery? What about cakes?

If we go the route of taking food out of the GST, however we define it, the disputes will be in the courts before the ink has dried on the legislation.

What we will end up with is a system that looks remarkably like the current wholesale sales tax system but with 1.6 million taxpayers struggling with the complexity rather than 80,000.

It would be a red tape nightmare for small business and retailers in particular.

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