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GST increase puts tourism and financial institutions in the tax firing line

9 February 2010

MEDIA RELEASE

Statement made by John Cantin, Senior Tax Partner KPMG

All business will be impacted by any increase in GST. However, Tourism and Financial Institutions will be more affected than others.

Financial Institutions cannot recover full GST so that a GST increase will either increase their costs or reduce returns to savers. This means the Government does need to properly model the effects of a GST rise on the incentive to save to make sure the effects it intends are realised.

Close to the Prime Minster's heart as Minister of Tourism will be the impacts of any GST on this sector. With the GST rate in Australia at just 10 per cent, an increase to our rate would have a negative impact on New Zealand's competitiveness..

The sector would have to either increase prices and therefore demand, or absorb the impact and reduce profitability.

Any increase in GST could result in a run on goods and services before the tax is increased so care must be taken, particularly by providers of goods and services, particularly retailers.

When GST was last raised there was increased demand for goods and services in the lead up to the change. Some providers took it as a sign of future demand and increased their inventories which they found difficult to sell after the rise.

For more information, or for an interview, please contact Sneha Paul on 021 243 8997

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