10 Feb 2010

Concerns GST increase may prolong downturn

7:29 pm on 10 February 2010

There are warnings about the possible impacts of an increase in the goods and services tax on the New Zealand economy.

Economists say it could increase volatility and lengthen the downturn.

The Government hopes a rise in GST to 15% from 12.5% will reduce consumption and boost savings.

But an economist at Auckland University, Susan St John, believes this could depress the economy and possibly hit investment.

The BNZ says the move will increase volatility as people rush to spend up before any rise in GST, leaving a hangover period of reduced demand after the introduction of the higher rate.

Goldman Sachs JB Were's Philip Borkin says a mix of higher GST and lower personal tax rates is good for growth.

However, the head of economics at Auckland University, Tim Hazeldine, says mortgage payments are GST-exempt.

Mr Hazeldine says raising GST with these exemptions still in place could boost property investment - the opposite of the Government's aim.