Statistics New Zealand clarifies impact of GST on CPI

Statistics New Zealand has clarified the impact on the consumers price index (CPI) of any change to GST.

Statistics NZ Prices manager, Chris Pike, says lifting GST to 15 percent could increase retail prices of goods and services that are subject to GST by 2.22 percent. Some commentators have been assuming the price increase would be 2.5 percent.

“A product priced at $100 excluding GST currently sells for $112.50. If GST were increased to 15 percent, that product would retail for $115, an increase of 2.22 percent, not 2.5 percent,“ says Chris Pike.

“There is also a second factor. Not all goods and services in the CPI basket are subject to GST. Housing rentals, school donations, and credit services are not subject to GST. Those items make up about 9 percent of the CPI, so about 91 percent of the cost of the CPI basket would be affected by a change in GST. This means an increase in GST to 15 percent would lead to a CPI increase of about 2.0 percent.”

This assumes no change in price for goods and services that are not subject to GST. However, all food items in the CPI are subject to GST, so the increase in food prices would be about 2.2 percent, all other factors remaining equal.

Chris Pike stressed that these figures were based on the assumption that any new GST regime would apply to goods and services in the way current arrangements apply.

“This is the situation if all other factors remain as they are, if retailers pass on all the GST increase to consumers, and setting aside the possible indirect impact of other tax changes that might be implemented at the same time,” says Chris Pike.

Yesterday, Statistics NZ released the consumers price index (CPI) for the December 2009 quarter.

The CPI fell 0.2 percent for the December 2009 quarter and increased 2.0 percent for the year to the December 2009 quarter.