An increase to GST would be damaging to retailing

An increase to GST would be damaging to retailing

Increasing GST would hurt the country's retailers just as they’re getting back on their feet, says the head of New Zealand’s leading retail district.

“Before any increase took effect there would be a rush on consumption but then the shops would go quiet as people’s cost of living went up over night,” says Cameron Brewer, chief executive of the Newmarket Business Association.

“The worry is the Government has still not ruled out an increase to GST and it could come as soon as May's Budget. Out of the Tax Working Group’s final recommendations released late last year, the Finance Minister only ruled out a Capital Gains Tax on family homes. An increase to GST is still on the table.

“If GST was increased to 15% it would boost the Government’s coffers by $2 billion per year. That would be very easy and attractive to the Finance Minister given his current borrowings.

“An increase to GST could also help offset any cuts to the corporate and personal tax rates, but it would mean Kiwis’ pay-packets would shrink overnight. It would hit the country’s retailers when they least needed it.

“The past 18 months has been really hard on retailers. The last thing they now want to do is increase their prices to help out the Inland Revenue's tax gathering. Consumer and business confidence is looking really positive for 2010 and December spending was up over 4%. Ramping up GST would do nothing to help the economic rebound."

Mr Brewer says talk about an increase in GST is also earning a scorning from the Inbound Tour Operators Council. They believe it would make New Zealand much less competitive in the international tourism market.

“Let’s not forget that tourists visiting Australia can get their GST back on major purchases, while New Zealand doesn’t even have a user-friendly tourist refund scheme. If our GST is increased it only makes buying in Australia look more attractive for tourists.

Goods and Services Tax (GST) was introduced in New Zealand on October 1, 1986 at 10%, and later increased to 12.5% on June 30, 1989.

Mr Brewer said given potential political fall-out the most likely scenario would be an increase to 15% - although he believes 17.5% or 20% could be an outside possibility.

“The Government needs to make a call on the future of GST sooner rather than later. Having it up in the air is not very helpful.

"Across-the-board price increases would really scare the horses. Let’s not forget that the New Zealand consumer has become very used to the ongoing nationwide sales. The fact that consumers are generally so used to price reductions would see some retailers forced to increase GST then cut their own margins to try to keep the end price down. If retailers feel forced to cut their margins to keep the product price down then that effects their profitability and business livelihood.

"State-sanctioned price increases would go down like a lead balloon with the New Zealand public. Hikes on every good and service would only keep people’s hands in their pockets and ironically that would be a negative for the Government’s overall tax take,” says Cameron Brewer.

ENDS

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