GST Standstill Keeping A Third Of Sole Traders Below The Median Wage

More than a third of New Zealand’s 400,000 sole traders deliberately choose to earn less than $60,000 a year - less than the median income – to remain below the GST threshold. They say this is due to the impact paying an additional 15 per cent in GST would have on their businesses in the current economic climate.

Any sole trader or business in New Zealand expecting to earn more than $60,000 a year must register for GST. Selling products or services to another GST-registered business means the cost can be offset; however, if you sell directly to the public, the only options are increasing prices by 15 per cent, absorbing the increase, or combining the two.

New Zealand has around 400,000 sole traders, making up approximately 20 per cent of the country’s workforce. The most recent Sole Trader Pulse, an independent survey of the sector by Hnry, found 36 per cent purposely stay under the $60,000 income threshold, which hasn’t been adjusted for inflation or wage growth since 2009.

56 per cent support increasing it to $75,000 a year, and 43 per cent of sole traders registered for GST say they either definitely or probably lost business due to increasing their prices by 15 per cent.

Carl Rein is a personal trainer in Wellington and says he must carefully consider his workload to ensure he doesn’t exceed $60,000 a year to avoid passing on an immediate 15 per cent price increase to his clients.

“Increasing my rates by that much would impact my earnings because people have less to spend on wellness, particularly in Wellington. Once you hit $60,000, you have to earn a lot more quickly to avoid a pay cut unless you think your clients can afford a 15 per cent increase. At the moment, it’s just not worth it, so I have to manage my workload to stay under, which causes uncertainty towards the end of the year.

2022 IRD statistics show 27,032 people earning between $60,000 and $75,000 would become GST-exempt if the threshold were increased. Meanwhile, productivity is plummeting across New Zealand, dropping 0.9 per cent overall in April and as much as 6 per cent in retail and 9 per cent in manufacturing.

Former Emirates cabin crew member Leon van der Plas started his own business as a tour operator for cabin crew in 2018. He says he’s also stuck in the GST doldrums, balancing his earnings to stay under $60,000 versus losing clients.

“The nature of my work means that I’m not always able to plan far ahead, as it’s not until cabin crews are touching down that I get the full scope of what the week will look like. Registering for GST isn’t worth it because, on top of paying my income tax, it would essentially bring me down to minimum wage unless my income increases rapidly,” he says.

In other sectors, a massage therapist has re-trained in web development and is giving up the freedom of being a sole trader for full-time work due to the limits of the current GST threshold - despite wanting to stay self-employed. A graphic designer working in the wedding industry says as she’s working directly with customers, adding 15 per cent to her costs would make it unaffordable for many at the moment.

Hnry CEO James Fuller says the latest Pulse has revealed the current GST threshold needs to be reviewed.

“These recent Pulse findings show the current GST settings limit earning potential, business growth and ambition at a time we need this most. It’s been around 15 years since it was last reviewed, and based on previous reviews and changes, we are due for it to be looked at.

“78 per cent of sole traders also report they’re cutting back on business costs to make ends meet, with 74 per cent saying business is getting tighter; if the GST threshold were to be increased, it would not only boost productivity, it would immediately empower sole traders to grow, and provide targeted relief that’s desperately needed,” he says

Hnry’s latest Sole Trader Pulse occurred between July 4th and 15th, 2024, and has an average error margin of +/-4.4%.

GST Explainer

GST was first introduced in 1986 with the threshold set at $24,000. The GST threshold has increased three times, keeping in line with inflation and wage growth, until the last increase in 2009, when the threshold lifted from $40,000 to $60,000. Despite the rise in inflation over the past 15 years, there have been no adjustments to the point at which GST must be paid on income. In today’s money, the current threshold should be more than $84,000.

For comparison, in Australia, people earning more than $75,000 a year pay 10 per cent GST.

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