Complaints about retailers taking advantage of the GST rate rise to increase prices.
My first thought was, 30 complaints about GST rate rise activity is encouragingly low at this stage. Clearly a tiny tiny proportion of all trading activity.
The Commerce Commission says attributing a price increase of more than 2.2% solely to the GST rate increase "can't possibly be correct". Big statement! I guess it has all the obvious appearances of being true. But is it?
[I’ve had to update this here because since writing this post the online and print versions of the Herald article have been amended to remove the quote above. It’s unclear why. My comments below are still applicable to the extent they make the point that an increase of more than the GST rate rise could be explained solely by the rate rise in a wider context of overall pricing strategy. Iain]
Perhaps it’s just a bit of loose language and I shouldn’t be so picky. However, it is important. Breaches of the Fair Trading Act are serious and there are significant implications for the offending business.
It is actually possible an increase in price from $55 to $65 (the example given in the article) is solely attributable to the GST rate rise, but not in a simple mathematical way.
The retailer may have made pricing decisions about a variety of products. It’s possible they kept several other products at their old price because they believed they were at important “price points” and customers would not accept an increase at all notwithstanding the GST rate rise. To ensure their overall business profitability remained at the pre GST increase levels they may have felt they could increase the price of one particular product by more than 2.2% to absorb the GST increase not able to be recovered from the others.
Yes, you could say the increase from $55 to $65 was not due “solely” to the GST increase because it was also a result of a more strategic pricing decision the business made. However, surely it’s also correct to say the wider pricing strategy was due solely to the GST rate rise as well (applying a “but for” test)?
It’s a difficult area for traders and clearly they have to be extremely careful what they say, and so does the Commerce Commission.
Barrister, Director and Consultant specialising in tax, family enterprise governance and succession, helping start ups and entrepreneurial enterprises grow safely and international expert on value added tax policy and implementation.