GST Increase Hikes Prices at Record Rate

January 24, 2011 New Zealand Taxation

24-02-2005Last year’s Goods and Service Tax rate increase caused a significant jump in New Zealand’s inflation figure, with debate arising as to whether consideration should be taken to lower the tax.

Last week it was revealed that the recent hike in the national Goods and Service tax (GST) rate bumped the quarterly inflation level to the highest it has been in 22 years. According to official data released by the Reserve Bank of New Zealand (RBNZ), inflation for the three months to December 2010 rose to 2.3 percent, the highest quarterly increase, since the last GST rate increase in September 1989.

The rapid price rise has been attributed to the October 1st 2010 2.5 percent hike to the GST rate. The disproportionately high results during the quarter brought the cumulative inflation rate for the 2010 year to 4 percent. If the effect of the GST increase is accounted for, the inflation rate is estimated to have only been 2 percent.

The seemingly heavy inflation increase has prompted the Automobile Association of New Zealand (AA) to renew its campaign to persuade the Government to drop the Goods and Service Tax (GST) levy on petrol, as it is already subjected to the petrol excise tax. The AA claimed that by removing the GST on petrol, motorists could save nearly 8 cents per liter, greatly compensating for the increased prices arising from the GST rate increase.

The AA’s calls for actions regarding the GST fueled inflation increase were downplayed by New Zealand economist Christina Leung, who claimed that key economic indicators show that inflationary pressures in the New Zealand economy has been contained for the time being, and there is no immediate need to investigate tax changes.

Photo by thornj