Cereal killers
Why taxing charitable businesses is a recipe for cutting community services, not creating fairness.
Finance Minister Nicola Willis has again declared her intention to reform the taxation of businesses run by charities,. The New Zealand Taxpayers’ Union, a group ostensibly dedicated to reducing taxes, enthusiastically has backed the sentiment. And as is the case whenever this comes up, cries of “bUt wHAt AbOUt SANitARIUM?” have been thick in the air.
Sanitarium and the Seventh-day Adventist Church: The Bigger Picture
Sanitarium is a division of the Seventh-day Adventist Church, a charitable organisation whose combined financials reflect its substantial contribution to New Zealand society. The Church reported a total income of $280 million in the most recently reported financial year, with Sanitarium’s $225 million revenue representing the bulk of this figure.
Yet, despite this considerable income, the Church spent nearly $278 million. It spent everything it took in—and then some. The expenses reflect a wide range of activities, including food programs, education, aged care, health and wellbeing initiatives, and religious missions.
This is not a profit-maximiaing corporation hoarding untaxed revenue. Instead, it’s a community-focused organization ensuring that every dollar is reinvested into charitable work. Sanitarium is just one part of this broader ecosystem, and its operations are integral to funding these initiatives.
These aren’t minor contributions; they are lifelines for thousands of New Zealanders. Every year, the Church and its divisions, including Sanitarium:
Provide 8.2 million free meals to those in need
Operate 16 schools, educating over 2,000 students
Deliver nearly 20,000 care days for the elderly
Here’s where most of the money went:
$1.6 million on finance costs;
$6.6 million on general operational expenses;
$207 million on nutrition, wellbeing, and health food activities, which include both:
its operational costs to create and distribute food products; and
charitable initiatives such as the distribution of the said 8.2 million serves of healthy food to communities in need.
$6 million on international aid and aged care;
$6 million on education; and
$37 million on religious activities
People hostile to religion are apt to seize on the $37 million spent on religious missions, but it’s crucial to note that this figure is for the entire Seventh-day Adventist Church, not just Sanitarium. Furthermore, the vast majority of that spending can be accounted for by non-trading income, including $29 million in donations and bequests and $6 million in investment income, rather than revenue generated by Sanitarium’s trading activities.
The Reality: Cutting Tax-Exemptions Would Hurt Communities
If the government were to tax Sanitarium like a for-profit business, the organisation would be fine. All it would need to do is cut back on its charitable initiatives.
Of course, if these services were scaled back due to taxation, the burden would fall on the government to fill the gap.
Yay?
The Myth of Unfair Competition
When the revenue impacts are pointed out the go-to is to claim that charitable tax exemptions give charities like Sanitarium an unfair advantage over competitors. But international experience shows this concern is overblown.
In the United States, an Unrelated Business Income Tax was introduced in 1950 to tax income from activities unrelated to a charity’s mission, supposedly to prevent unfair competition. But as scholars have noted, UBITs have generally failed for a combination of insuperable legal, administrative, and economic factors. See here and here for example.
The fact is that exemptions from certain taxes nonprofit organisations do not generally confer an unfair advantage because they operate under fundamentally different principles compared to for-profit businesses. Nonprofits exist to serve public, charitable, or educational purposes, and their revenue is typically reinvested into fulfilling their mission rather than distributed as profit to shareholders.
This difference in motivation explains why UBITs have not significantly increased competition or government revenue. Instead, it has led to endless legal disputes over what constitutes a taxable activity, benefiting lawyers and accountants rather than taxpayers.
Where’s the Evidence of Advantage?
If Sanitarium were leveraging its tax-exempt status to gain an unfair advantage over competitors, we would expect to see significantly lower prices on its products, to the point of driving rivals out of the market. Yet, a quick look at the New World supermarket shelves today reveals a very different reality.
At Pak’nSave, a 1.2kg box of Sanitarium Weet-Bix costs $6.00, while a 1kg box of Pam’s Wheat Biscuits, a generic alternative, is priced at $4.59. Per 100g, the generic option is noticeably cheaper, costing $0.46, compared to Weet-Bix at $0.50.
This pricing is hardly the behavior of a company aggressively using tax savings to undercut competitors.
When compared to premium competitors, Sanitarium’s pricing sits within a standard range for its market category. Far from pricing competitors out of the market, Sanitarium appears to be operating in line with or even above the pricing of other brands. This reflects not a predatory pricing strategy, but rather the reality of running a mission-driven organization with significant operational costs.
Producing high-quality food products isn’t cheap, even for a charity-owned business. Sanitarium’s operational expenses, including raw materials, packaging, transportation, wages, and equipment maintenance, must be covered just like any other company. What sets Sanitarium apart is where the remaining revenue goes: instead of being distributed as profits to shareholders, it is funneled into charitable programs, such as free food for children, educational initiatives, and aged care services.
If anything, the continued presence and affordability of alternatives in the market debunks the myth that Sanitarium’s tax exemptions provide it with an overwhelming advantage. It’s clear that its pricing strategies are not designed to disrupt the market but to maintain steady revenue streams to support its charitable activities. Instead of threatening competition, Sanitarium’s operations exemplify the balance between running a business and fulfilling a social mission.
We’ve heard all this before
The push for taxing charitable businesses like Sanitarium bears an eerie resemblance to calls from the left for a capital gains tax in New Zealand. CGT fanatics consistently show themselves to be deaf and blind to the practical realities— low revenue potential, high compliance costs and the international evidence showing minimal benefits. They don’t care that the tax wouldn’t solve any real problem; they just want it because it satisfies their urge to target perceived privilege.
That’s why no amount of evidence—about the vital services Sanitarium funds or the costs such a tax would impose on the state—will change the minds of people on this one. Facts just bounce off their brains like bullets off Superman’s chest. You can’t reason people out of a position they were not reasoned into.
A Policy Solution in Search of a Problem
But let’s be very clear: the push to tax Sanitarium and other charitable businesses isn’t about fairness or fiscal responsibility—it’s about resentment. Like the debate over other taxes, it’s driven by ideological blind spots and a fundamental misunderstanding of the policy’s consequences.
Sanitarium is not the problem—populist ignorance is.