GST exemptions on fruits, vegetables and other core foods and beverages

Fruit and vegetables are currently exempt from Australia’s 10% Goods and Services Tax (GST). This exemption provides an incentive to purchase them instead of less healthy, processed food, and could be regarded as a type of subsidy. As noted in Price policies for food and beverages, there is strong evidence that subsidies are effective in increasing fruit and vegetable consumption, and this effect may be further 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 current exemptions (including those 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 considered the potential health costs of a 10% rise in the price of fruit and vegetables. Modelling has shown that such a price increase 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 in Australia could cost an estimated one billion dollars to treat.⁴

On the basis of evidence that taxes and subsidies can improve diets, there is broad support amongst public health groups for the retention of the GST exemption for basic, essential foods, including fruit and vegetables.¹⁵ Removing the GST exemption for fruit and vegetables is likely to 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.⁶ 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.⁷ However, it is important to note that these approaches can be complementary to (rather than in replacement of) current GST exemptions.

Retaining the GST exemption for fruit and vegetables is also important in light of figures showing that, across the population, few Australians have adequate fruit and vegetable intake. Australian Health Survey results (2022-2023) show that 56.2% of Australian adults did not eat the recommended daily serves of fruit while 93.7% of Australian adults did not meet daily vegetable intake guidelines.⁸ (see Diet and physical activity in Australian adults). The poor diet of the population is now a major contributor to the burden of disease and illness in Australia, and economic incentives (such as GST exemptions) should be central to efforts to improve population diets.⁹

GST exemptions on basic, essential foods also remain critical to keep healthy options affordable for all during cost-of-living crises. In Australia, average annual food and beverage Consumer Price Inflation (CPI) peaked between 2021-23 (6.6%), reaching the highest levels in the last two decades (compared to 2.6% between 2013-23). For example for milk, the annual CPI reached 10.7% between 2021-23, compared to 3.1% in the decade prior. These figures would have likely been exacerbated without the GST exemptions.

Importantly, the World Health Organization encourages governments to continue to implement policies to subsidise foods and beverages, that constitute a healthy diet, including through GST exemptions.