Budget 2010: Retailers say timing bad on GST rise

The large majority of retailers believe the timing of the Government's GST increase will be bad for their business.

And many economists say they do not expect a spend-up in shops before the new 15 per cent levy takes effect in October.

The survey of more than 400 Newmarket retailers, conducted by the Newmarket Business Association this week, said 82 per cent believed the GST increase would be "bad".

"Given the very challenging retail environment of the past two years, the timing of the GST increase is viewed by most retailers as poor," said association chief executive Cameron Brewer. "Retailers have been knocked around for many months, and they view this as just another obstacle."

Mr Brewer said consumers would be compensated with tax cuts and so that would minimise the impact.

But the survey showed 73 per cent of retailers believed the GST increase would cost their businesses money to comply, with the likes of changes to computer systems and repricing and retagging merchandise.

Mr Brewer said most retailers were set to directly pass on the GST increase to the consumer.

"There's been a theory circulating that retailers won't put up their prices come October for fear of scaring off price-sensitive shoppers.

"However the reality is there is not much room left in most retailers' margins to absorb the rise; 87 per cent of retailers told us they intend to put up their prices to reflect the increase."

New Zealand Retailers Association chief executive John Albertson said yesterday that the shopping sprees seen when GST was introduced in 1986 were not expected with this new rise.

Any increase in spending would be "minimal" and similar to what was seen when GST rose from 10 per cent to 12.5 per cent in 1989.

"There will be some categories where I think we may see a little bit of forward-buying and we'll probably see some promotion around that as well ... but I don't think it's going to be huge either way, to be honest.

"The personal tax reductions across most income groups is going to be greater than the increase in GST so there's an off-set there.

"I don't think people are going to feel any less well-off as a result so the impact on sales won't be huge."

He was pleased retailers had until October to change their prices.

Prices on some items would go up but others wouldn't change at all.

"Something that's selling at the moment at $49.95 - it's very unlikely that they're going to sell it at $51.06. It's not a logical price point."

Hospitality Association chief executive Bruce Robertson said some operators would increase their prices in stages throughout the year, but others would wait until October.

The industry also expects a rise in the excise tax on alcohol later this year.

BNZ chief economist Tony Alexander agreed the GST rise was too small to affect spending.

"Retailers may try and scare people, but realistically I don't think the change in price is large enough.

"I can see ourselves writing commentary when we've got September numbers and saying: 'Well, there didn't seem to be much of a turn up there'."

- additional reporting NZPA