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Prevention: Tax and pricing

Fruit and vegetables and the GST

Last updated 06-06-2019

Fruit and vegetables are currently exempt from Australia’s 10% Goods and Services Tax (GST), which provides an incentive to purchase them instead of processed foods. There has been some debate about broadening the GST base by removing the exemption for fruit and vegetables, but health groups oppose this.

Key Evidence

01

Australia is meeting international best practice by exempting fruit and vegetables from the GST

02

Removing the GST exemption could lead to 90,000 extra cases of heart disease, stroke and cancer

03

Few Australians currently meet the recommended daily intake of fruit and vegetables

Fruit and vegetables are currently exempt from Australia’s 10% Goods and Services Tax (GST). This provides an incentive to purchase them instead of less healthy, processed food, and could be regarded as a type of subsidy. As noted in the previous section, there is strong evidence that subsidies are effective in increasing fruit and vegetable consumption, and the effect may be enhanced when combined with taxation of unhealthy foods. In assessing the implementation of evidence-based food policies in Australia, a panel of experts concluded that Australia is meeting international best practice by exempting fruit and vegetables from the GST.1

There has been some support among economists2 and discussion within government3 about broadening the GST base by removing the exemption for fruit and vegetables. While removing exemptions could deliver extra revenue to governments in the short term and reduce the tax’s complexity, researchers have highlighted the potential health costs of a 10% rise in the price of fruit and vegetables. Modelling has shown that such a price rise could reduce demand for fruit and vegetables and result, over the lifetime of the Australian population, in an additional 90,000 cases of heart disease, stroke and cancer. This additional disease burden could cost an estimated one billion dollars to treat.4

On the basis of evidence that taxes and subsidies can improve diets, the Obesity Policy Coalition (OPC) supports retention of the GST exemption for fruit and vegetables. Removing the GST exemption for fruit and vegetables would be regressive since lower income earners spend a higher proportion of their income on food compared to high income earners and would therefore need to spend a comparatively higher share of their income to purchase healthy foods.5 Advocates for removing the exemption, including think tank the Grattan Institute, say this inequity could be addressed through other, targeted mechanisms such as lowering income tax or providing direct support to purchase fruit and vegetables, however this approach carries its own administrative costs and may be vulnerable to changes in government policy.6

Retaining the GST exemption for fruit and vegetables can also be considered in light of figures showing that, across the population, few Australians have an adequate intake. Australian Health Survey results show that 9 in 10 (92.4%) Australian adults did not eat the recommended 5 serves of vegetables and 1 in 2 (48.7%) did not eat the recommended 2 serves of fruit in 2017-18.7 The poor diet of the population is now a major contributor to disease and illness in Australia.8

References

1. Global Obesity Centre (GLOBE) and Australian Prevention Partnership Centre. Policies for tackling obesity and creating healthier food environments - Scorecard and priority recommendations for Australian governments. 2017. Available from: http://www.opc.org.au/...
2. Veerman L. Taxing fresh foods could have a big, bad health impact. The Conversation, 2013. Available from: https://theconversation.com/taxing-fresh-foods...
3. Commonwealth of Australia Department of the Treasury. Re:think Tax discussion paper. Canberra, Australia 2015. Available from: http://bettertax.gov.au/publications/discussion-paper
4. Veerman L and Cobiac LJ. Removing the GST exemption for fresh fruits and vegetables could cost lives. Medical Journal of Australia, 2013; 199(8):534-535.
5. Obesity Policy Coalition. Submission to Australian Government Re:think Tax discussion paper. Melbourne, Australia 2015. Available from: http://www.opc.org.au/downloads/submissions/...
6. Daley J, Wood D, Parsonage H, and Coates B. A GST reform package. Melbourne, Australia: Grattan Institute, 2015. Available from: https://grattan.edu.au/report/a-gst-reform-package/
7. Australian Bureau of Statistics. 4364.0.55.001 - National Health Survey: First Results, 2017-18. 2018. http://www.abs.gov.au/AUSSTATS/
8. Australian Institute of Health and Welfare. Risk factors to health, 2017. https://www.aihw.gov.au/reports/