Explainer: How will GST on online purchases affect me?

Explainer: How will GST on online purchases affect me?
Photo credit: Getty

I've heard the good old days of cheap as chips online purchases are over. Is that true?

Well, kind of.

The Government is introducing goods and services tax (GST) on all overseas purchases, which means you'll probably be paying 15 percent more for The Very Hungry Caterpillar on Book Depository.

But, honestly, for most things, it will probably still be cheaper to buy from online giants - they have huge mass purchasing power.

So why is the Government doing this?

New Zealand businesses have to charge consumers GST, making it hard to compete with overseas internet retailers who don't charge GST on purchases cheaper than $400. 

The Government says putting GST on all goods will make it fairer for local businesses.

But the purchasing power of international retailers will be hard to beat. Amazon doesn't have to pay for physical stores and shop assistants.

However, buying from a physical shop still has huge perks: you get a good look at the product, you don't have to wait for - or pay for - its delivery, and the shop assistants might be able to tell you there's a very strong likelihood your 1-year-old niece already owns The Very Hungry Caterpillar.

How much more expensive will my purchases be?

Say you want to buy some classic yet stylish and understated sneakers. On ASOS, you can get a pair of Reebok Club C-85s for $143.18 including shipping.

Explainer: How will GST on online purchases affect me?
Photo credit: ASOS

Once 15 percent GST gets added to that, they are likely to go up to $164.66

The same shoes can be bought from Australasian shoe chain Platypus for $150. In this case, the addition of GST would level the playing field.

We don't even need to run the numbers to say The Very Hungry Caterpillar will still be a lot cheaper on Book Depository (currently $11, including shipping) compared to the Warehouse ($18).

I somehow got this far through the story but, um, I actually don't know what GST is...

It's a flat-rate tax that applies to almost all goods and services in New Zealand. It's set at 15 percent.

You pay GST on all the food you buy from the supermarket, you pay GST on a Big Mac from McDonalds, you pay GST on your movie ticket, you pay GST on the pair of classic yet stylish Reebok Club C-85s you got from the shop during your lunch break.

Critics of GST say because it's not staggered accoring to income, it disproportionately hits poorer New Zealanders.

But GST has huge support from economists, who say because it's a flat rate, it's incredibly simple to administer. 

When will the changes come into effect?

You have until October 2019 to buy GST-free goods under $400 on ASOS. 

How much money will the Government make from the new tax?

The Government's officials estimate $53 million in 2019/20, $78 million in 2020/21 and $87 million in 2021/22.

What does the Opposition say?

National supports bringing smaller overseas purchases into the GST regime. 

ACT, meanwhile, says while it supports the tax, revenue collected from the tax should be returned to New Zealanders in the form of tax cuts.