Taxes Push New Zealand Inflation to 20 Year High

July 18, 2011 Taxation in New Zealand

consumer price index increasesNew Zealand has seen its highest annual inflation rate in over two decades, with tax increases being the major factor of the negative impact on the economy.

In a press release issued on July 18th Statistics New Zealand confirmed that the prices of everyday items are rising faster than in recent years. According to data contained in the release, New Zealand’s annual inflation rate has hit 5.3 percent, which is the highest level seen in the country during the last 21 years.

Approximately 2.3 percent of the rise is attributed to last year’s Good and Service Tax (GST) rate increase, which saw the tax rise from 12.5 percent to 15 percent. According to Statistics New Zealand estimates, if the GST rise had not been instated, the annual inflation rate would only be approximately 3.3 percent. The previous inflation peak was also largely attributed to a GST rate hike, which saw the tax rise from 10 percent to 12.5 percent.

Since the inflation rate announcement was made, analyst have been debating the longer term repercussions of the economic event. According to some international analysts, national core inflationary pressures were relatively steady, and headline inflation figures would normalize in the short term, after the effects of the tax increase had worn off. However, it was also pointed out that much of the inflation can be attributed to disproportionate increases in food prices, along with increases in costs for petrol and tobacco products, and that any future hike to excise duties would make a further significant upward impact to the national inflation rate.

Photo by ·yChian·