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While the Budget's GST increase to 15% came as no surprise, it could still provide some headaches for retailers, says ONE News business reporter Nadine Chalmers-Ross.
That rise in Goods and Services Tax, from 12.5% to 15%, was one of the most widely-flagged tax changes in the Budget and it's also the key to the government's more popular tax changes - because it funds the cuts to personal and company tax rates .
Retailers signalled they didn't want to see a changeover date any earlier than October 1, and October 1 is exactly what they got.
Even so, some commentators say retailers who don't have the benefit of experience of the previous hike in 1989, don't know what they're in for, and need to start preparing ASAP, because the IRD won't be forgiving of companies who underpay because they were underprepared for the change in only four months time.
The change will, of course, affect the pricing of thousands of products right from a block of cheese to a new fridge - but not all price changes will be equal.
Retailers tend to determine particular "price points" - for example a standard $99.99 for a set of sheets is purposely chosen to look like it's under $100.
Strictly speaking with GST at 15%, the price of that set of sheets would go up to $102.20. But that is an awkward and impractical price point.
A tax partner at Deloitte, Alan Bullot, says retailers "will need to make a call about whether they absorb some of the rate rise or protect their profit margins and pass more of an increase on to consumers".
But as the Retailers Association points out, a cursory glance at the newspaper or the ads on television will tell you that retailers are still having to fight hard to get consumers to part with their cash, and will be loathe to be undercut by competitors who opt not to use the opportunity to reclaim some of the margin lost over the past two years.
That's something the Reserve Bank is likely to be watching closely.
It will "look through" the initial spike in inflation data caused by the rise in GST, but it will be concerned if that flows through to inflation expectations and wage claims.
Bullot also warns that time is of the essence.
"They need to be aware there is a lot of work to do in between now and October 1 - just over four months may seem a long time away but in reality it'll fly by pretty quickly."
The next question is whether retailers, or indeed consumers, will buy-in to pre-GST hike sales like they did in 1986 and 1989.
However, in 2010 most would agree that 2.5% discount doesn't seem like much of a saving, even if Kiwis hadn't got used to seeing significant reductions during and post the recession.
Of course, that doesn't mean retailers won't try.
Even before the rise was confirmed in the budget, Briscoes was advertising a GST-related sale - although some might argue Briscoes seldom needs any excuse for a sale.
Add a Comment:
Post new commentlauzyeah said on 2010-05-27 @ 14:22 NZDT: Report abusive post
I am coping now, just, with prices as they are, but once they go up im going to struggle.and if it wasn't for Working for families, i would have to be on a benefit, and im sure this is the case for thousands of parents.i'm working to get ahead, and im doing a damn good job too, would you rather they cut WFF and have thousands back on the benefit,using more money? think about it
westy mum said on 2010-05-24 @ 07:30 NZDT: Report abusive post
WELL WE ARE REALLY STRUGGLING NOW FAMILY OF SIX ONE PARENT WORKING WE CAN BEARLYH AFFORD FOOD WEEKLY NOW WE DONT DRIM\NK HAD TO GIVE THAT UP WE DONT SMOKE TO DEAR, WE HAD TO GIVE OUR CAR UP WE COULDNT AFFORD GAS SO WE USE THE TRAIN WE ARE WE GUNA GET A BACK COME ON IF IT WASNT FOR THE WORKERS OF THIS COUNTRY WHERE WOULD WE BE
entwine said on 2010-05-23 @ 20:32 NZDT: Report abusive post
Being a single 40+ female, with no children I think the budget will be of benefit to me. To be honest, I was a bit sick of the previous Governments working for families etc. We all have choices in life, why should I pay via my taxes for someone else deciding to have children? I struggle to make ends meet too!
Juanita01 said on 2010-05-21 @ 17:36 NZDT: Report abusive post
This is a step in the right direction. If people can not afford to have these childen, then stop. Stop complaining that things are going to cost more, stop spending! People have to start taking responsibility for there actions and stop expecting the government to hand them everything.
lauzyeah said on 2010-05-21 @ 15:50 NZDT: Report abusive post
I am a single mother of 2 children both under age 4, i am 23 , i am not on a benefit, and i am working to raise these boys. I cannot afford to stop working and go study to get a better job, if i did, i would have to go on the benefit, which would cost the government and tax payers more money. the government wants people off the benefit and working, but now have raised tax on everything, making it a hell of alot harder to do so.