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The government is surprised that New Zealanders are living more frugally, and haven't felt the need to beat the GST increase next month to 15 per cent.

"We've been surprised at the extent to which people have clamped down on their spending and focused on paying off debt," Finance Minister Bill English told Television New Zealand's Q+A show.

Households have "really taken to heart the message that they need to get their debt down before they spend, and that is a bit tougher on retailers in the short-term," English said.

Retailers are confirming tough times. Postie Plus chief executive Ron Boskell said he sees no improvement in retail sales "this side of Christmas."

The economy slowed to a 0.2 per cent pace in the second quarter, and other nations, notably Ireland, have posted weaker gross domestic product.

Kathmandu Holdings, the outdoor equipment retailer, is finding dim consumer confidence and cost pressures both domestically and internationally "are a challenge," said chief executive Peter Halkett.

The GST hike gets a lower income tax trade off but there's still a risk of second-round inflation from the tax change that the central bank couldn't look through so easily. Unemployment has spiralled up and many companies aren't yet showing a rebound in trading activity.

English told Q+A that New Zealanders have to go through "some short-short-term pain" to work through their overhang of debt.

"As they get the debt down, then households will start spending again."