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At my 5th birthday party, my mother served up jelly mixed with grated carrot. I clearly remember one of my cousins being aghast at this perversion of a sacred dessert. He viewed it as an attempt to poison us by stealth. I did not notice the carrot until it was pointed out to me, so it was probably a tactic my mother repeatedly used to great success. Labour has tried to slip carrot into our jelly on a national scale. Tucked away in its tax package is a relaunch of the idea of taking GST off fruit and vegetables. It is hoping that this will trick us all into eating a little healthier, ultimately resulting in savings for our health system. There is little doubt that there is a problem. True to our pioneering heritage, New Zealand is at the cutting edge of the obesity epidemic, with the latest figures putting us just behind the United States and Mexico in the fat stakes. More recent work by Bill Gates shows that obesity's evil twin, diabetes, lurks not far behind - we are in the top five developed nations for that too. But is this the right response to the problem? First, let's look at the focus on fruit and vegetables. The consensus is that we eat too much food energy (that is calories, particularly fats and sugars), and not enough micronutrients (like vitamins and minerals). Fruit and vegetables are generally high in fibre, which fills us up but doesn't give us too much energy. Sure, some fruits are high in sugar but the positive impact of the fibre generally outweighs that - as long as we don't just drink the juice. And veges, in particular, are the best possible source of most vitamins and minerals. This is solidly backed up by the science, regardless of all the contradictory studies you read about in the media. So we need to eat more fruit and vegetables, that much we know. Is taking GST off them the right approach? Changing relative prices does seem to help. We humans are programmed to seek out energy-dense foods. Food processing has allowed for cheap, safe, convenient food, but this has come at the expense of increased energy density and dwindling micronutrients. Over the past few decades these energy-dense foods have become cheaper relative to nutritious foods. As a result, price-conscious consumers tend to eat this sort of food. But it is a false economy, because our health system ends up picking up the bill. How much difference would removing GST on fruit and vegetables make? On average it would save each household just over $2.50 a week. A trial of this concept led to households spending all the savings on more fruit and veges, which is encouraging - at least they didn't spend it on booze and fags. Assuming a household spent all that extra money on fruit and vegetables, it might be enough for an extra bag of apples. Given that fewer than half of New Zealanders get their 5+ a day, it seems unlikely that this policy alone will be the silver bullet. Nevertheless, it comes with a price tag of $250 million. But this is only half the problem. When we look at the spending by different household groups, a different picture emerges. The poorest 10 per cent of New Zealand families spend about $10 a week on fruit and vegetables. At the other end of the spectrum, the richest 10 per cent spend around $30 a week. This means taking GST off fruit and vegetables will give the poorest just over $1 extra a week. That will barely make a dent in their food bill. Meanwhile, the richest will get just under $4. That is before we even start to deal with the tricky boundary issues. Labour's plan to take GST off fresh fruit and vegetables opens a Pandora's box in that regard. Currently we have a very simple system of GST collection, which makes our collection rate one of the highest in the world. While removing GST from fruit and veges is a fairly minor change, it would introduce border issues into the system. For instance, how will it deal with frozen, cooked or processed fruit and veges? Will growers be able to claim expenses for growing fruit and vegetables that are to be used for cooking or processing purposes? What if a salad on sale includes some cooked elements and some not? While this policy might be a step in the right direction, it is not really going to help the people who need it the most. And when you take into account the administration issues, you have to wonder if it is really worth it. Thankfully there are alternatives that could better deal with these problems. One proposed by researchers Des O'Dea, Delvina Gorton and Cliona Ni Murchu is the use of food vouchers. These have had a bad rap in their time in the United States, but have had a resurgence thanks to electronic card technology. For the same cost as removing GST, every family could be given $5 for each child to spend on fruit and veges every week. This would make a much more sizeable difference to the food bill of the poor, not to mention their health. But ultimately there is only so far that the "health-by-stealth" approach can go. Subsidising good food is certainly the most politically acceptable place to start, but it won't do the job alone. Energy-dense, micronutrient poor food will continue to get relatively cheaper, and so the subsidy bill will have to grow to keep pace. Meanwhile, the health bill for obesity and diabetes will continue to grow. The only way to arrest this shift is through a whole raft of other measures, the most unpopular of which will be taxing foods on the basis of the energy they contain. After all, the biggest threat to our health now is no longer smoking, it is that we eat too much. This will no doubt raise even more fervent opposition than my mother faced at my 5th birthday party. However, such strong actions will be the only way to deal with our biological programming to eat ourselves to death. Astronomical excise taxes are now normal for cigarettes, and have played a huge part in getting smoking rates down in this country. A similar approach with fatty and sugary food is only a matter of time. Geoff Simmons is an economist at Gareth Morgan Investments, an Investment Management company servicing clients who want personal and transparent management of their investments. We manage investment portfolios for individuals and institutions, and we are a KiwiSaver and Superannuation scheme provider. We have been managing investments for over 20 years and have $1.5 billion under management. We are one of the largest investment managers in New Zealand. Visit us at: Gareth Morgan Investments
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