Tim Harford wrote in the Financial Times back in March (and re-posted to his blog last month):
Earlier this year, two distinguished gentlemen, Judge Hyde and his adviser Julian Stafford, sampled a mineral-enriched flapjack — alas, a year past its sell-by date — and pondered its qualities. (Flapjacks are slabs of oats stuck together with a glue made of butter, sugar and syrup.) The question: was this unconventional flapjack, designed as a pre-exercise snack, “of a standard to be served to guests as a treat with afternoon tea”?
Much turns on the answer, since the enriched flapjack hovers in the liminal space between a muesli bar, which, in the UK, attracts value added tax at 20 per cent, and an ordinary flapjack, which, by long-hallowed British tradition, is a cake and, therefore, zero rated for VAT purposes.
I am serious about the long-hallowed tradition. His Majesty’s Revenue & Customs notes that “at the inception of VAT, traditional flapjacks were widely accepted as cakes of common perception”. When HMRC drew the line between cake and confectionery, it nodded through the idea of flapjacks-as-cakes because to insist otherwise would be to incite a revolution. Is it absurd that a British judge found himself pondering the qualities of a flapjack and the “slightly unpleasant mouth feel” of the protein-enriched brownie with which it was packaged? Of course, it is absurd. But it is an inevitable consequence of the way the UK’s VAT rules try to draw distinctions that cannot sensibly be sustained.
FT Alphaville rightly lavished 5,000 words on the flapjack tribunal, which we can add to the infamous Jaffa Cake controversy — in which what is self-evidently a fancy chocolate biscuit was ruled to be a cake for tax purposes, and to the more recent case of the giant marshmallows, which were ruled to be an ingredient for toasted-marshmallow-and-cookie sandwiches (zero rated) rather than a standalone sweet (20 per cent rated).
That post, and various other writings (including my own) should be required reading for any politician looking to carve out exceptions to GST. It should be required reading for journalists writing on the subject, and for academics writing 'expert opinion' for media, such as this one:
While economists have argued that removing GST from foods is an expensive and complex exercise in terms of administration, and public health experts have argued that the approach is inequitable because it is not targeted to lower-income households (both arguments raised by parties opposing the bill), we need to start somewhere and focus on the changes we can make now to relieve families of the burden of high food costs.
New Zealand’s approach to taxing food differs from that of comparable countries including Australia, Canada, and the UK, where most basic foods purchased at the supermarket are exempt from GST (or VAT, as it is known in the UK). In these countries, basic foods are viewed as essentials and are therefore not subject to a consumption tax, to keep the foods more affordable for consumers.
Yes, New Zealand's approach to GST is different to those other countries. Our approach is better. Do we really want resources being tied up in court cases deciding whether flapjacks are a muesli bar, jaffa cakes are a biscuit, or giant marshmallows are a sweet? That's what we would get as soon as we start to carve out exceptions to the comprehensive GST that we currently have.
New Zealand's GST has a quiet simplicity. There are no arguments to be had about whether a good or service attracts GST or not. The exceptions (financial services, residential rents) are for the most part clear and obvious. If government is concerned about the cost of food for low-income families, they should provide targeted assistance to low-income families, and leave GST alone. On the other hand, I am very much looking forward to starting up SpudCars (see here).
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