The Goods and Services Tax (Exemption of Healthy Food) Amendment Bill (a private Member’s Bill sponsored by Rahui Katene) was pulled from the ballot last week. This Bill proposes to exempt “healthy foods” from GST so that these foods will be more affordable to low-income households. While the motivation for this is laudable, the question that needs to be asked is whether the cost of exempting a relatively narrow range of food groups would place a disproportionate burden on retailers. If this Bill is passed, the doors will be open to questions such as that recently decided in Lansell House Pty Ltd v FCT where the Federal Court of Australia held that the supply of a mini ciabatte (bread) that snaps like a cracker was a taxable supply of a cracker and not a GST-free supply of bread.
See Lansell House Pty Ltd v FCT [2010] FCA 329, Federal Court, Sundberg J, 9 April 2010.
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Exempting (or zero rating) healthy food sounds like a good social policy but it would add significant complications to to the existing GST regime.
Best way to use the tax system to promote healthy food would be to impose a tax on fat content.
You do get some fun cases though. The (in)famous Jaffa Cakes litigation has led the UK Courts to formulate a test for whether an item is a cake or biscuit. Answer: if it goes stale when it is left out on the bench – it is cake (biscuits go soft)
http://en.wikipedia.org/wiki/Jaffa_Cakes