How GST Affects Your Daily Purchases

Have you ever wondered how much GST adds to the cost of your everyday purchases? In New Zealand, GST (Goods and Services Tax) is added to most goods and services, which affects the prices we pay for everything from groceries to dining out. Let's take a closer look at how this tax affects our daily expenses.

GST and Your Grocery Bill

When you buy groceries, GST is included in the price. For example, if you buy $100 worth of groceries, 15% of that amount ($15) goes to GST, making the total bill $115. This can add up over time, especially for families buying larger quantities.

Unlike some countries where basic food items are exempt from consumption tax, New Zealand applies GST to all food products, including essentials like bread, milk, and fresh produce. This approach keeps the system simple but does mean that everyone pays tax on necessities.

Let's look at how GST affects a typical grocery shop. For a weekly shop costing $200 (including GST), approximately $26.09 of that total is GST. Over a year, that adds up to around $1,356 in GST just on groceries for an average household.

Dining Out and Entertainment

Eating out at restaurants or enjoying entertainment activities like movies or concerts also includes GST in New Zealand. If your dinner bill comes to $50, the GST portion would be $7.50, making the total $57.50. For those who dine out frequently, GST adds a noticeable amount to annual spending.

Consider a family of four having a restaurant meal. With an average bill of $120 including GST, about $15.65 goes toward the tax. If that family dines out twice a month, they'll pay around $375 in GST on restaurant meals alone over a year.

Entertainment venues like cinemas, theatres, and sports events all charge GST on tickets. For example, a $20 movie ticket includes $2.61 of GST. A concert ticket for $150 includes $19.57 in GST.

How GST Impacts Essential Services

Essential services in New Zealand also attract GST. Healthcare services, including GP visits and prescription medications, have GST added. A standard GP visit costing $60 includes $7.83 in GST.

Utilities like electricity, water, and internet services all have GST applied as well. For a monthly power bill of $250, approximately $32.61 is GST. Over a year, a household might pay hundreds of dollars in GST just on utilities.

Transportation costs, including petrol, public transport fares, and vehicle maintenance, all include GST. For every $100 spent on petrol, $13.04 is GST (the GST component is calculated as 15/115 of the total price, since the displayed price already includes GST).

GST on Larger Purchases

For bigger purchases like electronics, furniture, or vehicles, GST can add a significant amount. For instance, if you're buying a new laptop that costs $1,000, GST at 15% would add $150 to the total, making the price $1,150. Being aware of GST on larger items helps you budget more accurately for major purchases.

When purchasing a vehicle, GST makes a substantial difference. For a car priced at $30,000 excluding GST, you'll pay an additional $4,500 in GST, bringing the total to $34,500.

Home appliances and furniture also come with GST added. A washing machine priced at $800 includes $104.35 of GST. A lounge suite for $2,500 includes $326.09 in GST.

Even services related to major purchases, such as delivery and installation, have GST applied. If you pay $200 for delivery and setup of a new appliance, $26.09 of that is GST.

GST on Essential and Non-Essential Goods

Most goods and services in New Zealand have GST applied, but some essential goods, like certain financial services or exported goods, might be zero-rated or exempt. For everyday purchases, however, you'll almost always see the added GST, regardless of whether it's for essentials or luxuries.

This universal application means that New Zealand's GST system is simpler than in many countries, where different rates might apply to different categories of goods. The advantage is clarity and reduced compliance costs, but it does mean that even essential items bear the same tax rate as luxury goods.

Financial services, such as bank fees, interest charges, and insurance premiums, are generally exempt from GST. Similarly, residential rent payments don't include GST. This provides some relief from GST in these important expense categories.

How to Calculate GST on Your Purchases

To estimate the GST on an item, you can multiply the base price by 15% or use the formula: Total Price = Base Price × 1.15. This will give you the total amount you'll pay after GST is included.

However, since prices in New Zealand already include GST, you might want to know how much of a displayed price is tax. To calculate this, use the formula: GST Amount = Total Price ├ù (15 ├À 115). For example, if something costs $115 including GST, the GST component is $115 ├ù (15 ├À 115) = $15.

Understanding these calculations can help you be more aware of how much tax you're paying and assist with budgeting, especially for business purposes where GST may be claimable.

GST and Online Shopping

When shopping online from New Zealand retailers, GST is included in the price just as with physical stores. However, the situation is different when ordering from overseas.

For overseas purchases, GST is charged on imported goods and digital services. Low-value goods (under $1,000) purchased from overseas suppliers who are registered for New Zealand GST will have the 15% GST added at checkout. For suppliers not registered for New Zealand GST, Customs may collect GST when the goods enter New Zealand.

Digital services from overseas providers, such as streaming subscriptions, software downloads, and e-books, also attract GST if the provider is registered for New Zealand GST. For example, a $15.99 monthly streaming subscription includes $2.09 of GST.

Budgeting with GST in Mind

Understanding GST's impact can help with more accurate budgeting. When planning major purchases or estimating monthly expenses, remember that most quoted prices already include the 15% GST.

For business owners or self-employed individuals, keeping track of GST paid on business expenses is important as this can be claimed back through GST returns. Keeping good records of all business-related purchases with their GST component makes this process much easier.

For regular households, being aware of GST can help you understand where your money goes and make more informed spending decisions, especially when comparing prices between different types of goods or services.

Conclusion

GST affects the price of almost everything you buy in New Zealand. Understanding how much GST adds to your daily purchases can help you budget more effectively and make informed spending decisions. Whether it's your morning coffee or a new appliance, GST is a part of every purchase and contributes to funding essential services in New Zealand.

While we might not think about it with every transaction, GST forms a significant part of our spending throughout the year. For a household with an annual expenditure of $70,000 on GST-applicable items, approximately $9,130 goes toward GST. Being aware of this contribution helps us understand how we each play a part in funding the public services we all benefit from.

Next time you make a purchase, take a moment to consider the GST component ÔÇô it's a small way to connect your everyday spending with the broader functioning of New Zealand's economy and public services.