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Food Expenditure and GST in New Zealand

Publication Details

  • Food Expenditure and GST in New Zealand
  • Published: 8 Apr 2014
  • Status: Current
  • Authors: Creedy, John; Ball, Chris; Ryan, Michael
  • Pages: (2),iv,18
  • ISBN: 978-0-478-42162-0 (Online)
  • Ref. No: WP 14/07
  • Pub. type: Working Papers
  • JEL Classification: D11; H31; I3
 

Food Expenditure and GST in New Zealand

Published 8 April 2014

Authors: Christopher Ball, John Creedy and Michael Ryan

Abstract

This paper has two main aims. First, the poor targeting of a policy of zero-rating food in a goods and services tax (GST) is illustrated in a simple model where the revenue lost from zero-rating food is instead devoted to a universal transfer payment, with a larger effect on progressivity. Second, the paper investigates the welfare effects on New Zealand households of zero-rating food. The detailed effects, for a range of household types, are then investigated using Household Economic Survey data. Demand responses to consumer price changes are estimated and welfare changes, in terms of equivalent variations, are obtained. Comparisons are made across 'clusters', consisting of groups of households with similar characteristics. The reform is seen to produce a very small amount of progressivity in the GST, with redistribution from richer households without children to poorer households with children, and older households.

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Executive Summary

1 Introduction

2 Budget Shares and Tax Structures

3 Demand Responses and Categories

4 Welfare Effects of GST Changes

5 Conclusions

Appendix A: Utility, Demand Elasticities and Welfare

Bibliography

twp14-07.pdf (409 KB) pp. (2),i-iv,1-17

Acknowledgements

We are grateful to Matt Benge, Angela Mellish, Alastair Thomas and Martin Wong for their comments on an earlier draft of this paper.

Disclaimer

Access to data used in this paper was provided by Statistics New Zealand under conditions designed to give effect to the security and confidentiality provisions of the Statistics Act 1975. The graphs presented in this report are the work of staff at the New Zealand Treasury and not Statistics New Zealand. The views, opinions, findings and conclusions are strictly those of the authors and do not necessarily reflect the views of the New Zealand Treasury

 

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