Same tax rate, different rises

Photo / Richard Robinson

It should be simple. When GST increases from 12.5 per cent to 15 per cent in October, everything we buy should go up by the same percentage. Right?

Not necessarily, say retailers and other pricing experts contacted by the Weekend Herald.

We're more likely to see a range of price changes, partly because retailers sell products based on different price points to make things seem cheaper to customers.

An item priced at $9.99, for example, is unlikely to rise by 2.5 per cent to become $10.21, because it will look more expensive once it is over the $10 mark.

The retailer may make the item $10.90, taking advantage of the GST increase to grab some extra profit. Or, they may absorb the cost and increase another product's price instead.

Retailers Association chief executive John Albertson expects lower-priced items with low profit margins, such as milk and bread, to rise by exactly 2.5 per cent because buyers usually know exactly what they cost.

Other products like jeans, where products are in price range "bands" - encouraging shoppers to select from a low, a middle and a high-end price range - may not change at all.

For big-ticket items, like washing machines, there may be price drops before October, with retailers offering "we-pay-your-GST" sales, using the increase as a marketing tool.

But the head of the School of Communication, Journalism and Marketing at Massey University, Professor Balaji Krishnan,, believes that sooner or later most retailers will use the tax increase as an excuse to push prices up.

"Nobody in their right mind who is running a business is going to reduce the price ... they end up increasing it. It goes up slightly more which just makes the margin higher."

A product such as wine would not usually have consistent pricing between liquor stores and supermarkets, so an added $1 could easily go unnoticed.

People would become used to the new price and it would become the reference price that consumers expected to pay. "Once people start upwardly adjusting to that, $10.90 becomes the new $9.90."

The associate professor of retailing at Auckland University of Technology, Dr Andrew Parsons, said the way we pay would also affect prices.

"If your merchandise is bought by eftpos or credit card, then the pricing is a lot less significant because you can pay whatever that price is.

"But let's say it's a can of soft drink and it's sold through a vending machine, then it's very hard to go from $2 to $2.05 because we don't have the 5 cents any more. They've either got to bear it or they've got to change it to something that we have coins for."

Dairy owners, like many other retailers, are awaiting word from distributors before deciding what cost to pass on.