Tuesday 12 April 2011

GST and inflation

RBNZ rightly looks through the one-off hike in price levels that came with the GST increase. That's not inflation. But that level shift working its way into wage settlements would be.

From the latest survey of employers:
  • Roughly a third say that the GST increase has been or is expected to be a factor in future wage negotiations (see Table 68)
  • A majority of large (50+ employee) firms say wages and salaries either take account of past inflation outcomes, take account of expected future inflation, or are contractually linked to inflation (Table 67). Note that headline inflation numbers will include the GST hike.
I'm so going to win my bet with Matt.


  1. Treasury's talks with businesses - a sample of about 30 large corporates and tax practitioners in early March - pointed to wage increases in the 2-3% range. None, to my knowledge, factored in any compensation for the lift in the GST rate, as this was assumed to be more than fully offset by lower income tax rates. Generally speaking, firms had frozen wage increases for a couple of years but were resuming in 2011 and were conscious of the impact of rapidly increasing fuel and food prices.

    It will be interesting to see whether the intentions in the survey (posted out in August)are backed up but March's small sample suggested that doesn't seem to be the case.


  2. The StatsNZ survey had >5000 businesses, but zero out of thirty seems a significant difference. Could be that intentions have changed since folks filled in the survey back in August.

    iPredict has inflation over 3% even after GST works through.