Footnote:
John Quiggin's contributions to these pages show a remarkable tendency to coincide with the policy line of the Australian Democrats. His recent contribution on food (AFR November 19) is a case in point. Yes, expenditure per person and (non-alcoholic) drink excluding meals out varies only 10 per cent between the top and bottom quintiles in the ABS Household Expenditure Survey (HES) (from $32 to $35 per week).
But food is an amorphous group of items ranging from bread to caviar. For example, the top quintile spends almost twice as much per head on soft drinks as the bottom quintile. As many soft drinks are already taxed, exempting them from tax would favour the rich.
Playing the "find the equal expenditure" among the (tens of thousands of fluctuating) items on supermarket shelves is a game we can all play with the HES. It is a great deal less important (since we are talking about $3 per person per week in tax) than the costs imposed in collecting the tax.
The less costly it is for sellers (and ultimately their customers) in setting systems to distinguish between taxed and non-taxed items, and fewer distortions encouraging people to use otherwise less preferred items according to ultimately arbitrary distinctions liable to be left behind by changes in consumer preferences and production capacities, the better.
As for Professor Quiggin's claim that taxing food is more distortionary than designing adequate compensation, this is simply nonsense. Taxing food like other items and giving low income groups an extra $3 per week is, in redistributive and change of behaviour terms, clearly superior to not taxing food.
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