Cameron Brewer tells of the damage a goods and services tax increase would do to the retail sector.
Increasing the goods and services tax would hurt the country's retailers just as they're getting back on their feet. Christmas trade was an improvement on the previous year, but retail is still not out of the woods.
My wife tells me that before GST came into effect nearly 24 years
ago, she remembers her mother rushing off to buy a vacuum cleaner. So yes, leading up to an increase taking effect, there would be a rush on consumption.
However the shops would then go quiet as people's cost of living went up overnight.
The worry is the Government has still not ruled out an increase to GST and it could come as soon as May's Budget - which would be an unfortunate lead story for an Administration still enjoying its honeymoon.
Out of the Tax Working Group's final recommendations released late last year, Finance Minister Bill English only ruled out a capital gains tax on family homes. An increase to GST is still on the table.
If GST was increased to 15 per cent it would boost the Government's coffers by $2 billion a year. That would be very easy and attractive to the Finance Minister, given his current borrowings. Mr English has already indicated that if GST rose, lower-income families would somehow have to be compensated, given that they would be affected the most.
No matter how it was presented, politically it would still be a free goal for Labour.
An increase to GST could help to offset any cuts to the corporate and personal tax rates, but it would mean Kiwis' pay-packets would shrink overnight.
It would hit the country's retailers when they least needed it. It would give the Labour Party some free ammunition and the unions would hit the streets. Prime Minister John Key, who has a great political nose, remains less than convinced.
The past 18 months have been really hard on retailers. The last thing they now want to do is increase their prices to help out the Inland Revenue's tax gathering.
Consumer and business confidence is looking really positive for 2010 and December spending was up. Ramping up GST would do nothing to help the economic rebound.
An increase in GST is also earning scorn from the Inbound Tour Operators Council. They believe it would make New Zealand much less competitive in the international tourism market.
Let's not forget that tourists visiting Australia can get their GST back on major purchases, while New Zealand doesn't even have a user-friendly tourist refund scheme.If our GST is increased, it only makesbuying in Australia look more attractive for tourists.
GST was introduced in New Zealand on October 1, 1986, at 10 per cent and increased to 12.5 per cent on June 30, 1989. It was introduced and increased three years later by the Fourth Labour Government. The present National Government would relish the opportunity to remind the Opposition benches of that if GST flares up as an issue.
Given potential political fallout, the most likely scenario would be an increase to 15 per cent - although 17.5 per cent or 20 per cent could be an outside possibility.
The Government needs to make a call on the future of GST sooner rather than later. Having it up in the air is not helpful.
Across-the-board price increases would really scare the horses. Let's not forget that the New Zealand consumer has become very used to the ongoing nationwide sales. The fact that consumers are generally so used to price reductions would see some retailers forced to increase GST then cut their own margins to try to keep the end price down.
State-sanctioned price increases would go down like a lead balloon with the public. Rises on all goods and services would only keep people's hands in their pockets, and ironically that could be a negative for the Government's overall tax take.
If an increase in GST is to lead to a fall in consumption, a tightening of business margins and a Government being hurt politically, it is hard to imagine theFinance Minister announcing it in his second Budget.
* Cameron Brewer is chief executive of the Newmarket Business Association. He was a press secretary to former National leader Dame Jenny Shipley.
