Budget: GST hike draws criticism

The Government's well-signalled intention to raise GST announced in yesterday's budget has drawn criticism from a diverse range of groups.

Unions, the tourism industry, Age Concern and the Auckland's Newmarket Business Association all attacked the decision to increase GST from 12.5 percent to 15 percent, while the Public Health Association repeated its call for the tax be removed altogether from "nutritious" food.

Business tax experts were concerned about the short length of time for businesses to prepare for the increase, which comes into effect on October 1.

But their concerns were countered by Food and Grocery Council chief executive Katherine Rich who said although change would have a direct impact on the grocery sector, it was signalled by the Government back in February.

"This has given the sector a head start in thinking about and preparing for the required changes," she said.

KPMG tax partner Peter Scott said there were concerns many businesses were not prepared for the scale of activity necessary to implement the change.

"Businesses need to take action now in order to efficiently and correctly transition to the new rate," he said.

Deloitte tax partner Allan Bullot said the increase should have surprised no one.

"But many businesses, particularly small to medium-sized ones, weren't around when GST was last increased in 1989 and possibly haven't considered all the practical implications of an increase.

"They need to be aware there is a lot of work to do in between now and October 1 -- just over four months may seem a long time away but in reality it'll fly by pretty quickly."

Mr Bullot said businesses would need to make many critical decisions about how they prepare for the change, including issues such as pricing points, updating business systems, GST stipulations in long-term contracts, logistics around repricing consumer goods, and updating promotional material.

The most immediate concern for most, particularly those selling goods and services directly to consumers, would be how much to increase prices.

Mr Scott said New Zealand had had proposals to exempt certain products, "healthy food" and fruit and vegetables for example, but that would add significant complexity for businesses.

"The costs of compliance would ultimately be passed on to consumers in the form of increased prices," he said.

"That the Government has so far resisted any additional exemptions or reductions in GST is welcome."

The Tourism Industry Association (TIA) was another sector facing problems with the increase.

It would create transitional issues, as tourism operators working in the international marketplace set their contracts up to two years in advance, TIA chief executive Tim Cossar said.

"They will now need to decide whether they can raise those prices to take account of today's increase in GST or whether to absorb the increase."

An email poll of more than 400 Auckland retailers revealed that 82 percent of respondents believed the timing of the increase was "bad".

Conducted by the Newmarket Business Association in the 24 hours before the budget, the survey found that the timing was viewed by most retailers as poor, said association chief executive Cameron Brewer.

The Maritime Union said the increase was an attack on working class new Zealanders.

And Age Concern New Zealand said many elderly people would not have enough to live in dignity and safety. Seniors will get a 2.02 percent superannuation increase from October 1 plus small tax cuts but these are offset by the GST increase.

"If the GST increase sparks higher inflation than the Government estimates, we expect to see serious problems," Age Concern national president Liz Baxendine said.