Save yourself a spending spree

What's an extra 2.5 per cent worth? Should we all be rushing out to pay off our lay-bys and hire purchases, and making the most of the "beat the GST rise" promotions?
Probably not, says Consumer NZ consumer adviser Maggie Edwards.
"It's not going to disadvantage people, as such, because the rise will be offset by changes to allowances and tax cuts."
She said there could be a few weeks of uncertainty as businesses grappled with lay-bys, hire purchases and GST returns during the transition, but things should settle into the new rate relatively smoothly for consumers. Dashing out to buy higher-priced items in the rush of "beat the GST price rise" calls from retailers is not something she recommends.
"Retailers may try to use that as a marketing opportunity, but there is no rush. Don't be pushed into buying."
She said even a $1000 item would only be about $20 dearer after the change and people could expect to save more during sales. By buying early, you save little more than 2 per cent on the new price - compared to sales that can offer discounts of 10, 20, 30 per cent or higher.
"You have to look around and see what is going to be the best deal for you."
Some businesses may choose to absorb the 2.5 per cent increase in GST to keep prices below certain thresholds, for simplicity or for the sake of good customer relations. But prices for most goods and services will increase on October 1.
A Commerce Commission spokeswoman said businesses were perfectly entitled to increase prices - either for the GST rise or for other reasons - but the reasons given for the increase needed to be accurate.
"Any reasons given for price increases must be accurate and not misleading. A retailer runs the risk of breaching the Fair Trading Act if they put prices up by more than 2.5 per cent and blame the increase on the rise in GST."
The commission has also warned retailers that the shelf and checkout prices must be consistent - despite the changeover.
"A retailer cannot put the checkout prices up to reflect the price increase before the shelf prices are changed."
The Inland Revenue Department has been running a series of workshops around the country for businesses affected by the change, explaining how various payment options - such as lay-by and hire purchase - will be affected and how the change will affect GST returns during the transition period.
HOW WILL IT AFFECT YOU
Goods and services tax (GST) is rising from 12.5 per cent to 15 per cent on October 1, 2010. In most cases, if you are billed for something before that date,
the GST will be at 12.5 per cent. If you are billed after October 1, it will be at 15 per cent. Exceptions include:
- Additional information from www.ird.govt.nz

LAY-BY

For items on lay-by, the GST you pay depends on when you entered the agreement and when you make your final payment and take the item with you.
Lay-bys collected before October 1 will be taxed at 12.5 per cent. If your agreement is dated before May 20, but you don't collect the item until after October 1, you could pay 15 per cent on the outstanding amount. If your agreement is dated after May 20 and you collect it after October 1, the retailer could charge 15 per cent on the whole price.
Example: You put a $100 pair of jeans on lay-by in April and pay $80 off before GST changes. You could be charged the higher rate for the remaining $20, putting the overall price at $100.44.
If the jeans had been put on lay-by in June, the total cost would be $102.22 because you would pay 15 per cent on the whole purchase.
HIRE PURCHASES
If you sign the agreement on or before September 30, you should be charged at 12.5 per cent GST. If you sign the agreement on or after October 1, you will have to pay the higher rate.
Example: You bought a $1000 stereo system on a 12-month hire purchase agreement in December 2009. On October 1, 2010, you have paid off $900. You will not have to pay extra tax on the remaining $100 because the contract was signed before the changeover. The stereo will still cost you $1000 (excluding interest).
PROGRESS PAYMENTS
If you are paying a tradesman in instalments, rather than a lump sum, the GST involved will depend on when each payment is due. Payments billed, due or paid before the changeover are taxed at 12.5 per cent. Those falling after October 1 can be charged at 15 per cent.
The tradesman should issue a debit note to let you know about any change in price.
Example: An electrician is doing work on your house worth $1500, to be paid in three instalments of $500. The last payment falls after October 1, so you will have to pay 15 per cent on that instalment, making the final payment $511.11. The total cost of the work will increase to $1511.11.
EXISTING CONTRACTS
To stop businesses being unduly hit by changes, the GST Act allows them to increase prices on existing agreements or contracts, from October 1, to cover their own increased costs. This includes the likes of gym memberships and car parking contracts.
Example: If you are paying $20 a week to use a gym, this could increase to $20.45 after October 1, even though you have a contract signed before the GST change.
Some businesses may choose to absorb the changes for simplicity or to build goodwill with their customers. Check with firms you deal with about what they are doing.