In June 2025, the PNG government removed tax from ten basic food items (rice, flour, tinned fish, tinned meat, chicken, noodles, biscuits, cooking oil, tea and coffee), with the aim of easing cost-of-living pressures on poorer households. To date, this policy has cost PNG almost half a billion kina in foregone revenue. In a new World Bank Working Paper we traced who benefited from this tax cut. Of every kina the government gave up, only about eight toea (there are 100 toea in a kina) reached the poorest 20% of households. Stores and wholesalers kept 36 toea. The richest 40% of households received almost 40 toea.
So why didn’t the poorest households benefit more? For three reasons. First, they largely grow their food rather than buy it. Second, the purchases they do make are mainly from informal (that is, unregistered) stores such as canteens and tuckerboxes, which do not charge tax. And third, they rarely shop at stores that face enough competition to force them to pass a tax cut on to customers.
We draw on four distinct sources of data to show this. First is monthly supermarket prices collected by the National Statistical Office (NSO) and the Bank of PNG, second is a census of prices in every formal supermarket in Port Moresby collected by a team from UPNG, third is weekly prices scraped from the two chains that sell food online, and fourth is a monthly, nationally representative phone survey of around 1,000 households implemented by Digicel in partnership with the World Bank.
We find that in Port Moresby supermarkets, prices of the basic food items subject to the tax cut fell almost immediately, relative to comparable foods that stayed taxed (Figure 1). This happened without heavy-handed enforcement requiring stores to cut prices. Why? We show this is primarily due to competition. In central Port Moresby, where the nearest rival supermarket is on average about 150 metres away, stores passed on the full tax cut immediately. Elsewhere in the city, supermarkets initially passed on about two-thirds. The pattern even holds within the same chains.
Figure 1: Prices of food items subject to the tax cut and comparison food items in Port Moresby supermarkets (May 2025 = 1)
In contrast, outside formal urban stores almost nothing changed. Formal stores are registered businesses, such as supermarkets, that charge tax; informal stores — canteens and tuckerboxes — sit outside the tax net. Our nationwide phone survey finds pass-through of over 80% in formal stores in urban areas, but little or no price change in informal stores anywhere, or in formal stores in rural areas.
Over the nineteen months the tax cuts are currently expected to be in place for, it will cost the PNG government around K600 million. Only around K50 million of that reaches the poorest 20% of households, whereas the richest 20% receive around K145 million and stores and wholesalers retain about K215 million (Figure 2). As a simple benchmark, paying the same K600 million as a cash transfer to every household in the country, with no targeting at all, would deliver K120 million to the poorest 20%. Alternatively, for the same money, the PNG government could scale up nationally the child grant program it piloted in 2025, which would provide a monthly cash payment to all families for the first five years of every child’s life.
Figure 2: Share of foregone tax revenue accruing to each household quintile and to stores, actual versus expert predictions
None of these results was anticipated by experts. Before the results were in, we asked 237 economists and policy specialists across the globe, including in PNG, to predict them. Experts thought stores would keep half the foregone revenue and the rest would be shared roughly evenly across households, with the poor doing slightly better (Figure 2). They underestimated how competitive Port Moresby’s supermarkets are and overestimated how far prices would move everywhere else.
Who benefits from this policy was also misunderstood by the general public. In the April 2026 round of the phone survey, we asked people to select which, from six policy options on the government’s agenda, would do the most to support poor and middle-class households. More than 70% of households ranked a tax cut on food first or second. But this support is shallow. In the following month’s survey, a randomly selected group of respondents were told that the price cuts were concentrated in the big urban supermarkets where richer households shop. Among these households’ support for the tax cuts fell sharply.
There are three takeaways for PNG policymakers, who must decide in the coming budget whether to extend the tax cut beyond the end of 2026.
First, the tax cut worked where it could. Prices fell in Port Moresby supermarkets without heavy-handed enforcement, which is more than what most experts expected. But it cannot reach most households who grow their own food and buy the rest from a canteen or tuckerbox, and that is a feature of PNG’s economy.
Second, the money would do far more for poor households as a cash transfer. Another year of the tax cut costs around K400 million and delivers roughly K32 million to the poorest fifth. Even providing the K400 million as a cash transfer to every household, with no targeting at all, would put about two and a half times as much money in the hands of the poor. The child grant the government has already piloted is the natural way this could be implemented.
Third, the politics are harder than the economics but easier than the headline popularity suggests. A slight majority of households would rather the money went elsewhere, and support for the tax cut falls once people learn who benefits. The government can make the case that the tax cut reached shoppers in urban supermarkets, who are mostly better off. A cash transfer can reach a rural family that grows its own food and buys a few essentials from a canteen — even one that is imperfectly targeted.
The World Bank Working Paper described in this article was co-authored by its authors together with Matias Strehl-Pessina, a PhD student at UC Santa Barbara, and Ruggero Doino and Darian Naidoo from the World Bank.
Interesting read findings suggest that the tax exemption is short term price relieve measure and its impact will wane given underlying cost pressures are not addressed by government. For example, effect of depreciating kina. Meaning that prices of these items will continue to increase amid the current policy in place. There is an upside risk for prices of these items to surge when this policy comes off.
The people in the urban areas benefit more from this relief than rural and a case is made for this benefit to be made even. However, the urban population of what 20% happen to pay 80% of the tax (or some significant proportion) and if that’s the case then it may make sense for the current arrangement to remain. The urban population has more disposable income as a result and the tax from this is captured more efficiently in the urban compared to rural you might say.
Very good piece. One thing to note is there are limitations for the alternative policies like cash transfer (majority of the poor households don’t have bank accounts, etc). Will be good to also highlight the limitations and how the government can address this limitations. Second, some of the major supermarkets apart from competion as mentioned could be benefit from economies of scale and easily passed the tax cuts and also reputable company when it comes to adhereing to goverment tax policies and issues like compliance (high compliance).
This is certainly useful research, showing that the poor don’t get much benefit. But I’m not sure it’s right to suggest that a cash transfer to every household or scaling up the pilot child grant program would be any better in PNG. Both of those other options would be almost impossible to achieve comprehensively. They would also have impressive admin costs and foster massive corruption, so are effectively pie in the sky.
This doesn’t of course detract from the main conclusion that the food subsidy is largely ineffectual and inefficient in helping the poorest.
Great piece to read!
I do not have a background in economics, but I am keen to understand how government policy affects people’s socioeconomic wellbeing. Drawing on my own experience and views, I would like to share my thoughts on the presentation, particularly the government’s tax exemption for 10 basic food items announced about 18 months ago. Please correct me if I have misunderstood any part of the presentation.
First, the presentation would be clearer with a simple table showing baseline prices for the 10 basic food items at formal supermarkets and informal rural or settlement canteens and trade stores. Comparing prices before, during, and after the 18-month period would clearly show the policy’s effect on these items.
The presentation should next identify who benefited from the government’s tax exemption on 10 basic food items: low-income consumers, or major supermarket owners and importers. It should also explain how the policy affected rural producers who supply comparable local foods—for example, kaukau or bananas instead of rice, and live chickens instead of tinned meat. Including data on the benefits received by these producers and suppliers would strengthen the presentation. Although the analysis mentions informal-sector participants, it does not quantify how much they benefited from the policy, leaving an important gap.
As a Port Moresby resident who shops fortnightly for these 10 basic food items, I have felt little benefit from the government’s policy over the past 18 months. For example, the price of a 20 kg bag of Trukai rice rose from K68.00 to K96.00 and now stands at K112.00. This increase makes the tax exemption difficult to see in my grocery costs. The situation in provincial centres and rural areas is likely even more severe.
The government’s tax exemption policy on basic food items has had little to no impact on ordinary urban residents like me, as well as those in rural areas and the informal sector. Prices of the 10 basic food items remain high, and consumers have not experienced any noticeable benefits, not even an 8-toea reduction in the rural areas since I have not seriously experienced any in the urban center like Port Moresby.