Australian food tax – ripe for a refresh?

Access to nutritious food for all, irrespective of income, is an important social imperative. It’s something the Federal Government originally intended to support by introducing new tax regulations, including GST exemptions on basic fresh food like fruit, vegetables, milk and water.

Now 20 years later, our food industry has been subject to significant change and we are seeing health driven food innovations launched at a high pace – innovations our food tax regulation may not have been designed to deal with. This is triggering a key question – are these regulations unintentionally creating barriers for healthier food options and, as such, are our tax interventions still delivering on their social imperative?

‘Better for you’ food innovations

As consumers, our awareness of the impact of nutrition on our health has increased and, in response, consumer businesses are ramping up food innovations to increase their nutritional values, such as introducing additives such as vitamins in water and iron in milk. With our focus on obesity prevention, many consumer brands target sugar content reductions through product reformulations. Retailers are also embracing the health trend by introducing ready-to-eat meals and salads to make healthier habits a bit easier.

All are initiatives to tackle our growing health challenges but, unfortunately, many of today’s ‘better for you’ innovations in food are entering the zone of taxation due to their increased level of processing which no longer allows them to be classified as ‘basic foods’. These include, for example, individually packed drinks for kids which, over the years, have increased their water content to reduce the amount of sugars. On their own, natural water and 100% juice are GST-free, but when combined, they become subject to GST if the juice content is not at least 90%.

Is our food tax still delivering on its intent?

The intent behind the GST-free treatment of basic foods is ‘equity’. It was considered inequitable to impose GST on basic foods as low income earners spend a larger percentage of their income on these foods compared to high-income earners.

But if the intent is to create ‘equity’ and enable affordable access to healthy foods, should basic product modifications and ready-to-eat salads and meals that are nutritional and healthy not be exempted from GST?

Is tax the best lever to improve access to healthy food?

In addition to the question on whether the Australian tax regulations, in this new world of ‘better for you’ food innovations, are still in line with their initial intent, the issues of cost effectiveness is also challenged.

There is an ongoing debate that looks to broaden the GST base and argues for the removal of all exemptions, including those on basic foods, on the basis of ‘simplicity’. The administration costs of ensuring compliance to these exemptions are high, particularly for the ‘grey areas’. There is no doubt that with growing consumer awareness of the impact of food on our health and wellbeing, we will see the pace of innovations in food accelerate and with that the administrative tax burden.

Given the expected rise in administrative costs involved, is tax therefore still the most cost effective lever? Moreover, when we consider a broader base for taxation, further economic benefit would be obtained through increased tax funding. These additional funds and administrative cost savings could be redeployed to support our communities in others ways to access healthy and nutritious food.

The time is now

The need to enable access to healthy and nutritious food is more important than ever.

With the alarming increase in dietary driven diseases like obesity and diabetes in our society, it is crucial we continue to reconsider the effectiveness of our government interventions. Could it perhaps be more effective to redirect funds, for example, towards subsidies for highly nutritious crops and, in doing so, lower the price points of healthy foods? And especially when we try to combine this with social marketing campaigns to promote dietary diversity and the priorities of nutrient-rich food.

In this fast changing environment, and with limited government funding available, there truly has not been a better time to rethink our tax regulations and interventions to best support our people to live healthier and happier lives, now and in the future.


Eudora Lee is a Deloitte Tax director, and Abs Osseiran a Deloitte Tax partner. Vanessa Matthijssen is a Deloitte Consulting partner, and National Consumer Products sector leader.

Note: This blog is part of our series that explores the Future of Food. Topics that have been discussed previously include food tech, obesity, water sustainability, food waste and 3D printed food.

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