Shoppers face GST price-rise rort

Photo / Dean Purcell

Consumers face price increases beyond the likely 2.5 per cent rise in GST later this year, according to a survey of small businesses.

Almost half of the 500 firms surveyed say they intend pushing up prices by up to 5 per cent or more, to claw back margins eroded during the past two years.

More than 60 per cent say their own sales will be affected by the increase, likely to be announced in next month's Budget, to come into force in October.

The survey, by accounting software firm Accomplish, found that while a small number intended to reduce prices to increase market share, 11 per cent would put them up by more than 5 per cent.

It will be the first increase in the tax for 21 years, and some businesses also say they will spend the equivalent of 2 weeks of staff time implementing the changes.

The GST increases are part of a range of tax changes that will also include cuts to personal income tax.

Businesses and consumers will also face higher electricity and petrol charges following the introduction of the emissions trading scheme on July 1 and the affect of ACC levy rises.

The Accomplish survey covered retailers, small manufacturers, contractors and tradesman and found 57 per cent of them oppose GST rises.

Business New Zealand chief executive Phil O'Reilly said a GST rise would affect some businesses harder than others.

The worst affected include tourist operators with locked in prices 12 to 18 months in advance and small retailers where all sales have GST attached and spending is often descretionary.

Mr O'Reilly said the other Government charges were coming at a bad time for small firms which had been battered by the recession.

More than 90 per cent of the country's businesses are classified as small to medium size enterprises and have limited capacity to absorb external charges. By contrast the country's biggest non-food retailer, The Warehouse, said it would try not to put up prices as a result of any GST rise.

Chief executive Ian Morrice said the group was working on the assumption it would be introduced and it was already working to further reduce internal costs and cut costs from supply chains so "we can keep prices at the same level".

Westpac economist Dominick Stephens said small firms could struggle to get away with large price rises on the back of GST changes.

"I would suggest that sort of thing will be very short-lived. Exactly the same sort of competitive pressures and market conditions that have got prices and profit margins to where they are now will prevail after the GST increase," he said.

"You might be able to trick people for a couple of months but eventually competitive pressures will get prices back to the market equilibrium that prevailed before the GST increase."

Retailers Association chief executive John Albertson said he expected stores to hold prices of items where there is strong competition below existing price points, such as $99.99, but put up others by more to meet the obligation of returning 15 per cent of gross sales to the IRD.

If GST was to go up by October there would be a scramble to change tags pre-priced overseas to meet the deadline.

Accomplish general manager Grant Hewson said given the different approach to prices, consumers and businesses need to shop around more than normal after any GST rise.

WHAT MAY HAPPEN
* The Government is likely to increase GST from 12.5pc to 15pc in the Budget.
* Half of firms surveyed say they intend to push prices beyond a 2.5pc GST rise.
* One in 10 said they would increase them by 5pc or more.
* 60 per cent believe their business will be affected by the increase.