That seems like an income tax mixed with a sales tax credit? It sounds awkward because income tax comes out of your paycheck but the sales tax is applied at the point of sale. You'd have income tax withheld, buy food with the money you have left over, get credited for the essential goods you bought, then pay rent, then get a credit for that...

> but have essential goods be tax free?

People/politicians are very creative in what is to be considered essential.