Tuesday, 5 October 2010

Welcome to GST

There seems to be a lot of concern over GST - compounded by the fact that hardly anyone gets the amount right. (I note that Fair Go was the only media to work out the math properly...) ... I've been waiting a bit for the dust to settle before commenting.

C'mon folks, we've been here before:

The thing about percentages is a percentage of something

The actual per cent part just means that you multiply by 100.

GST increases from 12.5 percent to 15.0 percent. That is an increase of 2.5 percentage points - please be careful here: it is not an increase of 2.5% of anything.

The increase in GST is actually 20% - because 2.5/12.5 = 0.2 ... that's the amount of the increase divided by the thing it is an increase of.

What we care about, though, is how much the prices will increase by. The old price is 112.5% of the untaxed price and the new price is (expected) 115.0% of the untaxed price. This is because the total price is 100% of the untaxed price plus tax. The percentage increase is the percentage point difference divided by what it is different from or 2.5/112.5 = 0.0222... which makes 2.22%

This means that something that used to cost about $50 (a bottle of whiskey for eg) will cost an extra $1.11 and a $2000 TV or computer will come out at $2044.44

What retailers actually do is a different story. Some will absorb some or all of the tax increase, effectively reducing their profits, while others will use this opportunity to put prices up even more and blame the government.

As far as the shop is concerned, 12.5/112.5 of what you pay them is tax, but if they don't want to increase how much they charge you, this will become 15.0/112.5 ... this means they used to give 11.11% of the asking price to the government and now they have to give 13.33% - an increase of 2.22 percentage points or 2.22/11.11 comes to 19.98%

To normal people it works like this. If you give a shopkeeper $900 for a product, $100 of that would have been GST. After the increase, the amount is $119.98 ... in effect that would leave the retailer with $780 for the sale instead of $800.

Got it? (You have to practise.)

Meantime, I see that the Commonwealth games is dominating TV for the next however long. If you enjoy sports, that is great. But I don't, so this sucks the big one. In particular, athletic sports are even more boring than team sports. At least soccer or rugby starts to make sense after a few beers.

Probably this experience is made worse by school athletic days - nothing like compulsory fun to destroy any appreciation a nerdy asthmatic kid may have had for pointless physical exertion.

I managed to get into town yesterday, picked up season 7 of 24, which should be good for a sleepless night, or, with discipline, two days CG coverage.

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