Saturday, December 9, 2023

Remove tax on food at the production end

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Stuart Chambers of Karaka proposes a different approach to lowering the price of food.
Bringing down the initial cost of food production, with the removal of income tax from its profits, would provide consumers with a plentiful supply of cheaper food, Stuart Chambers says.
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By Stuart Chambers

The food growers of New Zealand, whether of fruit, vegetables, dairy, meat or grain, should all be exempt income tax on the profits from their produce. 

Food, as everyone knows, is a basic human necessity. It comes before clothing or shelter, or anything else as the essential item of survival, and cheap food has always been considered a basic human right. 

But food today has become costly. This has denied people the cheap rights of old, causing political parties to place an emphasis on the cost of food cost and a desire to make it more affordable. 

Recent discussion seems to suggest that the way to do this is via the taxation system, so overall tax cuts, or the removal of GST from food, have been at the forefront of this concern.

Many agree with these suggestions and take comfort in the political concern, but are simple tax cuts or GST removal the best way to get long-lasting results? 

I suggest that bringing down the initial cost of production of food, with the removal of income tax from its profits, would be a better long-term solution and give a return to consumers of a plentiful supply of food, and cheap too.

Whether the current suggestions of politicians will result in cheap food remains to be seen but history shows that the way to cheapness starts with the growers – by bringing down their costs of production. Food will always be cheap if it is cheap to produce in the first place.

We only have to look at some Pacific or African countries to know that cheap food is possible. Many such countries grow what they can in their private gardens and sell the surplus for whatever they can get in the local market or at the gate. This is known as the “vegetable garden” concept of food production. 

What is earned at the market or the gate simply goes into the grower’s pocket to be used to pay for such things as children’s education, or maybe even to put a corrugated iron roof on a currently thatched house. No portion of this profit goes back to the government.

This simple and ancient system could quite easily be introduced into New Zealand by allowing all profit from food production to be tax-free to the grower. If such a system was introduced the food market would quite quickly become heavily supplied and food prices would drop, so answering the politician’s prayer for cheaper food. Further, there would be more food for export with consequential increases in overseas exchange earnings.

If you look at NZ’s agricultural history, you will read that the country was built by food growers working under a taxation-free exemption. Taxation for landowners was not introduced until 1891, and then it came in the form of a land tax based on the market value of the land. This tax was aimed mainly at breaking up the very large land holdings and aimed at the wealthy.

As a means of breaking up large landholdings it was not very successful and so in 1917, to remedy this, a progressive tax of up to seven pence in the pound was introduced, based on the land’s unimproved value. Absentee owners paid an additional 50%. 

In 1930, only land with unimproved values of over £7000 was taxed, but income tax was levied on everyone. Land tax was later removed and income tax increased, but by this time NZ was a greatly developed agricultural nation, its agricultural development having been largely due to the incentives from its many tax-free years.

If political parties want cheaper food, they should look at this agricultural history and realise that NZ as we know it today was built largely on a tax-free profits policy for food growers to the eventual benefit of all.

To uphold the rights of consumers to cheap food, the cost of growing food has to be minimal. This allows it to take into account problems such as inclement weather and the inflationary pressures it encounters for largely operating outside of the business cost/plus situation. 

A system of income tax-free profits would help to achieve this with benefits to all. It would also make the ownership of land more rewarding and secure due to the higher income returns experienced by the grower. 

This would slow land sales as a way to greater riches so the spread of pine trees on good farmland, or town subdivisions into the countryside, would ease. 

So, rather than a GST removal or a promise of a taxation cuts as a way to lower food costs, why not simply remove taxation from grower profits of all food produced?

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