The Dim-Post

September 27, 2010

We attack under cover of daylight

Filed under: economics,Politics — danylmc @ 7:38 am

The Herald reports:

A Labour-led Government would scrap GST from fresh fruit and vegetables to encourage healthy eating and help New Zealanders as higher GST on other goods is imposed.

Opposition leader Phil Goff is expected to make the announcement today, the first in a three-week campaign about the rising cost of living that will see Labour MPs pushing the message in their electorates.

I’m interested to see what they do with this in a strategic sense. Labour has signalled this policy for around six months and they’ve spent last week announcing that they’re going to announce it today.

Setting aside the debate around whether it’s good policy it’s not exactly visionary: it will have a trivial impact on most people if introduced. So are Labour being clever and about to launch a much more ambitious policy (‘under promising and over delivering’, as Clark always put it) or will they just announce the rather anodyne policy they’ve said they’re going to announce?

(Goff’s last big policy announcement was back in January when he gave his ‘many not the few’ speech. A major policy development was signalled but his grand idea was to cap the salaries of the public service senior managers. It transpired that only a dozen or so people would be impacted. I don’t think we heard anything about this policy ever again)

If it is just the GST exemption for fruit and veges I predict lots of pious wailing about the simplicity and integrity of the tax system (exemptions are only good when they benefit companies and high net-worth individuals, not ordinary people) and lots of ontological idiocy about whether fried chicken is a fresh fruit or vegetable: ‘Won’t we need thousands of lawyers to figure that out?’

The real flaw with the policy is that its just a gimmick. I’ve written before about how the price difference between fruit and veges at the supermarket and the farmers market down the road is several hundred percent: we now know that the supermarket duopolies sell alcohol at a massive discount and pre-load the losses onto their fresh produce. So a policy that decreases the gross cost by 15% is going to be negligible – it could be wiped out by a single promotional campaign for Montana wines.

It’s hard to think of a more socially irresponsible sales technique than alcohol loss-leading but a policy to address that wouldn’t dove-tail in with Labour’s schizophrenic ‘axe the tax’ campaign so instead of a policy to decrease produce prices by ~100% at a cost to the supermarkets and liquor companies we get a policy to decrease them by 15% at a cost to the taxpayer.

Update: Labour has announced that they’ve announced the policy they said they were going to announce.

About these ads

57 Comments »

  1. ‘Schizophrenic’ Labour tax policies are symbolic of a change of philosophy: make the wealthy pay more tax on income and the lower paid less tax through sales. The issue of loss-leading in supermarkets is quite irelevant, Danyl; your whole line is sneeering, and less than honest. ‘We attack…’? No, you do. As you’ve posted previously, you can’t find Truth in a high wealth suburb like yours.

    Comment by Galeandra — September 27, 2010 @ 8:03 am

  2. “If it is just the GST exemption for fruit and veges I predict lots of pious wailing about the simplicity and integrity of the tax system (exemptions are only good when they benefit companies and high net-worth individuals, not ordinary people) and lots of ontological idiocy about whether fried chicken is a fresh fruit or vegetable: ‘Won’t we need thousands of lawyers to figure that out?’”

    Indeed. For a preview of said pious wailing and ontological idiocy, see here:

    http://www.kiwiblog.co.nz/2010/09/labour_abandon_their_own_gst_principles.html

    Comment by Rob Salmond — September 27, 2010 @ 8:08 am

  3. I reckon the policy will be popular, perhaps more-so than it deserves, and will certainly go further beyond the beltway than the VSM announcement – and anything that takes Labour beyond the beltway has to be good, doesn’t it (except voting fraud that is…).

    One of the pre-announcement announcements by Grant Robertson this morning, provided hints that the fruit and vege policy will be accompanied by enforcement legislation – I’d be keen to see how that could be done, but at least they have recognised the necessity of it…

    Comment by Sam — September 27, 2010 @ 8:10 am

  4. The most amazing thing about Danyl when he says these sorts of things is you can’t see John Key’s lips moving.

    Comment by Sanctuary — September 27, 2010 @ 8:31 am

  5. You miss a major point, Galeandra – the variations in the prices of fruits and vegetables _far_ exceed the effects of GST. So the argument that it will encourage people to eat more fruit and vege is just bullshit, pure and simple. It is an empty policy, designed to look good but accomplish nothing except to make a lot more work for lawyers (see the Australian example for evidence).

    I think that, yet again, Danyl has hit it on that nail on the head.

    Comment by David in Chch — September 27, 2010 @ 8:38 am

  6. Sanctuary – what part of this do you _not_ get? Danyl is centre left but refused to vote for Labour last time. I am centre left, and I refused to vote for Labour last time. Labour abandoned a LOT of its principles and has merely produced window dressing lately. Why don’t you get that we prefer to think things through and not blindly accept anything? I for one do not blindly believe any one line, I look at the evidence and decide based on that.

    Comment by David in Chch — September 27, 2010 @ 8:40 am

  7. Personally I think Labour should have outsourced this campaign to Sue Kedgley and Penny Bright.

    JC

    Comment by JC — September 27, 2010 @ 8:42 am

  8. You have achieved that most rarified of heights – wherein the LPNZ come out biting and sniping, simply by pointing out that their policies are shit.

    With apologies to Cole Porter (I believe it was) –

    ‘You say ‘objective’ I say ‘subjective’
    you say ‘delightful’ I say ‘inciteful’

    ‘Inciteful’ ‘delightful’ ‘objective’ ‘subjective’,
    Let’s call the whole thing off. . . .

    Well, it made me smile .. . . .

    Comment by Monkey Boy — September 27, 2010 @ 8:44 am

  9. Call me stupid but how does one decrease produce prices ~100% at a cost to the supermarkets?

    Comment by Chris — September 27, 2010 @ 8:50 am

  10. Danyl,

    Interesting post. I think that this issue will be a bit of a barometer of the electorate. Will the voters laugh this off as more Goff-goofery, or will this touch a nerve? We know that it’s difficult to bring up kids in this country without a high income – I’d expect this measure to resonate with women especially. How many mothers from poorer end of Palmerston North smile as they go through the checkout knowing that at present their grocery basket bears the single purity of a universal sales tax?

    And to be honest I think your “booze-lossleading vs GST on fresh-fruit-veg” confuses the two issues. Neither scheme is served well by your comparison, nor are either exclusive of each other.

    What I wonder about with stopping alcohol-lossleading is just how you’d expect the state to wedge itself between producers, distributers, retailers and consumers without it becoming an unworkable cluster-fuck.

    Comment by taranaki — September 27, 2010 @ 8:55 am

  11. The price of a banana at Pak’n’Save is not the same as the price of a banana at Foodtown etc etc. So unless you regulate the prices of all fruit and vegetables, what prevents the Supermarkets from creeping the prices back up over time and absorbing greater profits?

    The only way I can think of to prevent this price creeping, and still hit your target low income demographic, is to link GST exemptions to community service card-holders. Once you get to the checkout, you swipe the community service card and it wipes the GST off the fruit and veges you have purchased.

    Comment by Pat — September 27, 2010 @ 9:02 am

  12. tis all about brand – not rationality or efficacy. I think a worth a crack at this stage. before “we call it off” a al Mr Porter, lets wait and see….

    gutsy Phoenix win on Friday

    Comment by k.jones — September 27, 2010 @ 9:04 am

  13. Taranaki wrote: “What I wonder about with stopping alcohol-lossleading is just how you’d expect the state to wedge itself between producers, distributers, retailers and consumers without it becoming an unworkable cluster-fuck.”

    maybe it’s too extreme, but taking liquor licences off supermarkets would do it.

    Comment by kahikatea — September 27, 2010 @ 9:06 am

  14. OK, so let’s take at face value Labour’s claim that this is going to whack $250-270 million a year out of the public purse. Have I missed the announcement of an equivalent amount of spending cuts or tax hikes elsewhere from the next Labour-led government?

    Comment by Craig Ranapia — September 27, 2010 @ 9:12 am

  15. Yes – they hinted at their intention to introduce a top rate at $100,000+. It’s been in the papers for ages.

    Comment by taranaki — September 27, 2010 @ 9:22 am

  16. Whoa back Jemima, a fruit and vege lead policy assault from the dream team.

    There’s some low hanging fruit *badoomshhhhh*

    Comment by leon — September 27, 2010 @ 9:29 am

  17. Certainly not their best work – a meaningless policy that will have minor impact.

    Comment by Michael Stevens — September 27, 2010 @ 9:32 am

  18. I predict lots of pious wailing about the simplicity and integrity of the tax system … and lots of ontological idiocy about whether fried chicken is a fresh fruit or vegetable: ‘Won’t we need thousands of lawyers to figure that out?’

    Wishing to avoid adding yet more complexity to the tax system isn’t “pious wailing,” it’s a good general principle to follow and, in this particular instance, a good means of keeping out the thin end of the GST-exclusions wedge. And yes, it isn’t that hard to define fresh fruit and vegetables closely enough to draft a law change. The “ontological idiocy” would actually begin after the law change, ie having been provided with a means of gaming GST, the food industry would proceed to game it, IRD would seek to prevent them gaming it, and yes there would be lots of lawyers quibbling over the exact legal meaning of the terms “fresh,” “fruit” and “vegetables.”

    Comment by Psycho Milt — September 27, 2010 @ 9:36 am

  19. If Danyl’s hypothesis is correct then grocery prices should be lower in West Auckland than other Auckland supermarkets because West Auckland sueprmarkets are “dry”.

    Anyone know if they are?

    Comment by Me — September 27, 2010 @ 9:39 am

  20. This just demonstrates how close on policy National and Labour really are, when a key policy announcement amounts to little more than tinkering around the edges.

    And the mushrooms, Mr Cunliffe. What about the mushrooms.

    Comment by Pat — September 27, 2010 @ 9:40 am

  21. “grocery prices should be lower in West Auckland than other Auckland supermarkets”

    if supermarkets weren’t part of a duopoly of chains you might be right…

    “key policy announcement amounts to little more than tinkering around the edges”

    well, we agree it’s necessary to abrogate the rights of all NZers in the name of reconstructing christchurch in our image, but on the really important issues like vegetables, we’re worlds apart…

    Comment by nommopilot — September 27, 2010 @ 9:46 am

  22. nommo

    different P&S supermarkets in my area often have different prices as they are individually owned. eg, I saw coke advertised for 98c/bottle at one and $1.60 or so at another last week. NW has different pricing again, even though it is part of the same group.

    Comment by insider — September 27, 2010 @ 9:55 am

  23. @taranaki: So, no actual policy then?

    Comment by Craig Ranapia — September 27, 2010 @ 10:04 am

  24. “as they are individually owned.”

    they still pay the same cost prices thru their supply chains, though the prices may differ due to different products being on special in different locations.

    the loss-leading happens well upstream of the individual supermarket

    Comment by nommopilot — September 27, 2010 @ 10:10 am

  25. Well gee Craig, maybe they’ll find the strength to release it sometime before the as yet undeclared election in 14 months time.

    I don’t recall you getting this sniffy at Key’s dance of the seven veils last election. The electorate knew nothing of his tax policy except “north of $50 a week” until 6 weeks before the election.

    I mean really, is that all you have? Complaining about a $250million policy because it isn’t presented as a fully-costed budget package over a year out?

    Comment by taranaki — September 27, 2010 @ 10:12 am

  26. Hey, at least it’s a POLICY! I thought Labour didn’t do policies anymore, so am heartened that there even is one. Maybe they’ll think of another before the term is out.

    Comment by Kate Kennedy — September 27, 2010 @ 10:17 am

  27. I missed the announcement of an equivalent amount of spending cuts or tax hikes elsewhere from the next Labour-led government?

    Higher tobacco tax wouldn’t surprise me.

    Comment by Stephen — September 27, 2010 @ 10:21 am

  28. “they still pay the same cost prices thru their supply chains, though the prices may differ due to different products being on special in different locations.”

    So you’re saying that individual shops sometimes pay the same for products but sometimes don’t, and then sometimes charge consumers the same price but sometimes don’t…

    Comment by insider — September 27, 2010 @ 10:41 am

  29. “So you’re saying that individual shops sometimes pay the same for products but sometimes don’t, and then sometimes charge consumers the same price but sometimes don’t…”

    no I’m saying that everything on the shelves comes from a central supply chain and cost the supermarket operator the same. the differences you see from store to store are due to particular specials set by individual store managers. the point I was making is that west auckland supermarkets don’t get cheaper cost prices on vegetables just because they don’t have alcohol because those loss-leading calculations are done at the corporate level.

    Comment by nommopilot — September 27, 2010 @ 11:03 am

  30. Labour really needs to go further and do something about the actual price of fruit and veges and not just the GST as others have mentioned there are variations.

    “target low income demographic, is to link GST exemptions to community service card-holders”

    I was thinking the same thing! Yes they need to do this. It needs to be targeted towards those who need it the most and one way to do this would be a price reduction for CS card holders. That’s the issue around Health promotion interventions is that the middle and upper classess utilise them but they not really the people that need them.

    Comment by K2 — September 27, 2010 @ 11:09 am

  31. Can we have fresh wine exempted too, i.e. this year’s vintage? If you want to cellar your Waiheke wine, you should pay GST.

    Comment by Uroskin — September 27, 2010 @ 11:16 am

  32. I don’t recall you getting this sniffy at Key’s dance of the seven veils last election.

    Well, I did – unless you think my oft-repeated bitching of English and Cullen’s “Enron accounting” was some kind of compliment. And I still don’t see the logic of promising to cutting government income AND increase government spending. Methinks I smell bullshit on the breath of anyone who says that with a straight face.

    And, Taranaki, what I’ve got is David Cunliffe promising tax cuts where the costing is, to put it politely, fuzzy and a great deal of *cough* strategic ambiguity in how he’s going to fill the fiscal hole. Wasn’t good enough from English two years ago, and I don’t see why I’ve got to swallow it now.

    Still, I guess I shouldn’t have unrealistic expectations of a party that was going round the country chanting “axe the tax” a few months back… but refused to answer any straight-forward questions about whether Labour would repeal any GST increase if it won the next general election.

    Comment by Craig Ranapia — September 27, 2010 @ 11:20 am

  33. nommo

    I’d have thought the loss leading we are talking about is the individual pricing decisions within a shop.

    So in the P&S example, they are individually owned so I expect (perhaps wrongly) that they have their own pricing policy that balances price/profits across their store only.

    You might have some prices driven by centrally negoitated prices eg, coke’s on sale this week and gets a special placement in aisles, but not always.

    So loss leading could be as much an in-store as corporate driven decision.

    With Countdown, those prices are centrally set I expect, so that judgement will be done across the chain as a whole.

    Fundamentally you have to look over time. Snapshots of what’s on special could be misleading. But without knowing the cost basis of pricing decisions we are pretty much guessing.

    Comment by insider — September 27, 2010 @ 11:24 am

  34. I kind of like the Kiwibank solution to market failures. Instead of government regulation the government owns a company that competes in the market. If you could buy your fruit and vegetables at ‘KiwiMarket’ for 1/4 the price of the supermarket cost then loss-leading wouldn’t be a viable marketing strategy. Maybe they could set up weekend farmers markets at public schools or something?

    Comment by danylmc — September 27, 2010 @ 11:26 am

  35. Libertarian bait!

    Comment by Psycho Milt — September 27, 2010 @ 11:44 am

  36. @Kate: Maybe they’ll think of another before the term is out.

    I’ll take that bet.

    Comment by Ataahua — September 27, 2010 @ 11:47 am

  37. “I expect (perhaps wrongly) that they have their own pricing policy that balances price/profits across their store only. ”

    nope, the corporates buy the wine and the vege in extra-bulk and then supply it centrally with the loss leading mainly happening up at that strata where the most corporate profit can be gleaned.

    further loss-leading may happen down the chain but the reason the corporate chains have such power is that they do the loss-leading thing in such bulk quantities…

    Comment by nommopilot — September 27, 2010 @ 12:10 pm

  38. do supermarkets make a loss on wine?

    Comment by NeilM — September 27, 2010 @ 12:14 pm

  39. “do supermarkets make a loss on wine?”

    not overall, but on many of the really cheap specials they either make next-to-nothing or a loss…

    Comment by nommopilot — September 27, 2010 @ 12:34 pm

  40. Where’s Lew commenting on the importance of symbolic politics :-P

    Comment by Me — September 27, 2010 @ 12:47 pm

  41. I was wondering what the economics of loss-leading on wine and recouping on fruit n veggies. Doesn’t look that great an idea. Isn’t it more that they make some profit because of the large turn over they can do.

    Comment by NeilM — September 27, 2010 @ 12:55 pm

  42. No, the very definition of loss-leading is to make an actual loss on one product.

    The expectation is that once the customers are in your shop they will purchase other (higher margin) products.

    It’s a different play to the larger chains ability to use bulk purchasing to drive down costs.

    Comment by greg — September 27, 2010 @ 1:37 pm

  43. At least at the farmers market I go to, the price difference is about 50%, not several hundred. Which is reasonable given the traders at the market don’t need a roof and sell all their stock in a morning.

    Booze has about a 15% gross margin in supermarkets, compared to around 80% on groceries. That’s explained by the fact that it takes up less space per dollar, has very little wastage and needs much less handling.

    If you factor in all the costs, shops make about the same net on booze and veggies

    Comment by rich — September 27, 2010 @ 1:41 pm

  44. 39.” “do supermarkets make a loss on wine?” – not overall, but on many of the really cheap specials they either make next-to-nothing or a loss…”

    I believe that is incorrect: the winery takes a bath in order to shift some stock or raise their profile. The supermarket often makes about the same margin $-wise, so the %-margin is a cracker.

    Comment by Clunking Fist — September 27, 2010 @ 2:29 pm

  45. Did anyone catch the news that frozen is usually more nutritious than fresh? Apparently they are harvested at the optimum time, then frozen. Whereas fresh are often harvested early, with the hope that they ripen as they hit the shelves. Then if they sit too long, they over-ripen and we don’t buy. As rich noted in the previous thread: wastage of fresh fruit and vege is factored into the price you pay.

    Comment by Clunking Fist — September 27, 2010 @ 2:38 pm

  46. oops, wrong thread, sorries!

    Comment by Clunking Fist — September 27, 2010 @ 2:39 pm

  47. [...] is a point Danyl also makes at the Dim Post: The real flaw with the policy is that its just a gimmick. I’ve written before about how the [...]

    Pingback by $1 a week more | Kiwiblog — September 27, 2010 @ 2:51 pm

  48. the winery takes a bath in order to shift some stock or raise their profile

    60-70% of NZ wine ends up being sold overseas, another 20% or so goes to Hotels/Cafes/Rest’s, so the ‘taking a bath’ is usually only to get rid of excess stock that would otherwise be sitting in a cellar taking up space and costing the vineyard money to maintain.

    Even then, if you look at the NZ wines you can pick up at a supermarket, it’s really only the major players. So it’s not like Foodstufs is even screw(cap)ing the little growers.

    Comment by Phil — September 27, 2010 @ 3:49 pm

  49. Hastings Pak’n Save has had some of the best wine deals of seen.

    Comment by NeilM — September 27, 2010 @ 6:19 pm

  50. @ David “I am centre left, and I refused to vote for Labour last time.”

    Wow. You are an absolute Trojan, brother.

    Comment by Galeandra — September 27, 2010 @ 7:24 pm

  51. My guess is that you won’t find a single person who supports this policy who has had to complete a GST return.

    I can only imagine what I nightmare this will be for your average small cafe or bakery owner.

    Comment by J Mex — September 27, 2010 @ 7:35 pm

  52. This is nonsense.

    Labour has not lost the plot. it would not know what a plot was.

    Complete and utter stupidity.

    Eating fruit and vegetables is the equivalent of eating sugar or drinking soda pop.

    How much of a domestic budget is spent on fruit and vegetables. Not very much at all, The “savings will be swallowed up by expenditure on everything else.
    Zeesh!
    We had micro-chipping stopping dogs biting. Yeah right!
    We had micro-chipping ensuring everyone registers their dogs. Yeah right!
    We had increasing duty on fortified wines to deter teenage binge drinking. Yeah right!
    We had a lowered drinking age limit. It deters binge drinking. Yeah right!
    We had a “chewing gum ” tax cut that was not arrogant or sneering? Yeah right!
    We had “compulsory” shower heads.
    We had “compulsory ” light bulbs.
    We had a minister determine to get into bed with John Howard over alternative health products.
    I do think that this area needs scrutiny but jumping into bed with another country’s legislation without conducting a review is good policy making? Yeah right! (It is not hard to figure out which lobbyists were behind that move.) The strength of the popular reaction caught the Labour Government by surprise.
    This latest proposal shows that they have learnt. YEAH RIGHT!

    This proposal defines the Labour Party as losers.

    John Key is on a roll for several terms while fuck witted policies like this get put up.

    The Labour Party is not on Wayne’s World but is in wankers world.

    80% of us can run our lives with little bureaucratic input.

    Comment by peterlepaysan — September 27, 2010 @ 8:44 pm

  53. Is this the best that Labour can do?

    If it is, then they have lost my vote.

    Farrar, Slater, Cactus and co, got room for me? I’m one of you when it comes to this.

    Comment by millsy — September 27, 2010 @ 9:36 pm

  54. Mercifully Farrar, Slater, Cactus and co have not yet formed political party.
    They would make ACT look positively functional.

    Comment by peterlepaysan — September 27, 2010 @ 10:50 pm

  55. Axe the tax labour, if you have the balls or you could fanny around on fruit and vege. Can’t wait for this summers motorcycle diaries from Che Goff.

    Comment by leon — September 28, 2010 @ 5:37 am

  56. “Mercifully Farrar, Slater, Cactus and co have not yet formed political party”

    sshhhhhhhhhhhh they’ll hear you. we don’t want to go giving them ideas now…

    Comment by nommopilot — September 28, 2010 @ 8:28 am

  57. Please don’t misuse the word ‘schizophrenic’ when you mean multiple personality disorder. The difference is important (to schizophrenics).

    Comment by progger — September 28, 2010 @ 11:53 pm


RSS feed for comments on this post. TrackBack URI

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

The Rubric Theme. Create a free website or blog at WordPress.com.

Follow

Get every new post delivered to your Inbox.

Join 388 other followers

%d bloggers like this: