TOO MUCH: Are Kiwi consumers paying inflated prices for food and services?

New Zealand: 100 per cent pure rip-off or the price of paradise? It costs a lot to live at the bottom of the world.

A few months back, British sports writer Peter Bills threw sand in the face of New Zealand accusing the goods and services sector of egregious overpricing.

The veteran journo and seasoned traveller bemoaned across-the-board costs and claimed Kiwi prices were well above what you could expect to pay in the most expensive cities of the world.

With the world soon to arrive on our doorstep as we play host to the 2011 Rugby World Cup, Bills suggested the country was "sleep-walking" into acquiring the unenviable reputation as international rip off.

His inflammatory comments ignited the simmering debate about whether the price of paradise was worth it.

The personal finance website nzmoneytalk.co.nz, in an on-line forum headed "Rip-off New Zealand" took the issue public and found widespread support for Bills' complaints.

Writes "Greg": "I am disgusted with internet prices both on mobiles and home plans, the price per gigabyte is staggering. Considering, in the UK you can get unlimited data for about 35 a month, here we would be talking hundreds of dollars and still not unlimited."

With some of the highest mobile-phone rates in the world, the telecommunications sector is often a prime target when talk turns to price gouging. Food is another.

Another contributor to the on-line discussion, "Nzconsumer" questions why Anchor-brand New Zealand butter can be bought for less in the UK than at home.

Others expressed concerns that the increase in GST from 12.5 per cent to 15 per cent would manifest in mark-ups beyond the incremental tax hike.

Summarising the discussion, Paul Woollams, one of Moneytalk's directors, says people felt they were being "ripped off across a range of areas, particularly food and utilities, which is where much of their day to day (non-housing) costs are incurred".

He says many fed-up consumers were turning to on-line international shopping to save themselves money.

"Kiwis are getting frustrated not just with consumer prices but the inability to be able to do anything about them. Throughout the numerous posts on the site we see murmurings about a feeling of helplessness and having no option but to pay the extortionate prices."

But is the criticism warranted? Are prices across the board really that much higher than other parts of the world?

Economist Shamubeel Eaqub poo-poos the suggestion that consumers here are hard done by.

While he concedes New Zealand's lower wages and salaries make it harder for some segments of the population to afford certain good and services, he says there is no evidence that prices here are higher than what could be expected from a small island in the middle of the South Pacific.

"I don't think there's much substance to it," he says dismissing Bills' "one giant rip-off" sting.

Taking into account New Zealand's quality of life, remoteness, and population base, Eaqub believes residents have it pretty good overall.

"Most people seem to have all the necessities of life at a pretty reasonable cost. Whilst we spend a bit more on things like food as a share of income it is not a huge amount more."

Yet according to a recent report by the Organisation for Economic Cooperation and Development (OECD), food prices in New Zealand have been climbing faster than just about anywhere else in the world.

Over the past decade, they've shot up 42.5 per cent. The only other country that saw a higher leap at the check-out was Korea at 48.2 per cent.

Eaqub maintains the year-on-year incremental increases are reasonable. He says international comparisons often create a distorted perception of bloated prices in New Zealand because they fail to take into account salaries.

With incomes between 50 to 70 per cent higher in the United States, Australia and Britain, it is only natural Kiwis feel a much tighter pinch when they go shopping, he reasons.

The gross (pre-tax) average household income in New Zealand is $78,870 a year. In the UK, after-tax average household income is around NZ$77,000.

Eaqub says aggrieved consumers often place an undue focus on price overlooking the consideration of quality, particularly when it came to food.

He used chooks as an example. "I'd hate to compare them with what you get in the UK supermarkets – they're waterlogged, tasteless junk."

Taste-testing aside, many consumers don't buy that argument that geography and scale justify the price tags.

Another contributor on the nzmoneytalk's forum, "WhyOWhy" said he struggled to understand why some items in New Zealand cost up to three times higher than in the US.

He used the example of a bike part component which retailed in New Zealand for $550 but which he found in the US for US$170 on Ebay. Taking into account currency differences and shipping, he said Kiwis could still save money buying overseas.

"Somewhere along the way, the importer, distributor, middleman or retailer is ripping us," he railed in his posting.

John Albertson, chief executive officer for the New Zealand Retail Association, says the allegations are groundless. He says profit margins bear this out.

According to the annual enterprise survey produced by Statistics New Zealand, average net profit sales for retailers across the country is 5 per cent.

"And if you look at the supermarket sector, they operate on 3 per cent profit. They're totally dependent on volume to make any money out of it. I'd hardly call that excessive profit taking."

Maths lecturer Audrey Tan says some retailers were unwittingly making mistakes by adding 2.5 per cent onto the old GST-inclusive prices, which is technically incorrect.

"For a small amount, the difference is only a matter of cents, but it does work in the vendor's favour. But if you look at the big picture, it all adds up. If every business makes the same mistake, consumers will lose money everywhere and businesses will make a profit."

Albertson puts the disparity in price between select goods sold in New Zealand and bigger overseas markets down to volumes. He says a population as small as New Zealand's (four million) could not expect to rival that in the United States which has a population of 250 million.

"If you think of how many people in New Zealand may be buying that item compared to the US, it makes a huge difference to your ability to buy as a retailer."

Albertson argues that for every pricy item that attracted criticism, there was a bargain-finders delight that simply went unheralded.

"You'll always find items that are going to be less or more expensive in one place than they are somewhere else."

Overall, Albertson says the retail goods in New Zealand were "fiercely competitive".

"There is no sector of the retail market were you don't have pretty intensive competition going on. Look at the level of discounting that goes on. I think the market speaks for itself."

Eaqub upholds the argument and says disgruntled consumers need to put pricing into perspective.

"We live at the end of the world and we're in a small market so we have less choice. Some things are definitely more expensive but nothing that would surprise you."

Asked to account for pricing differences between a lifejacket that retailed in the UK for NZ$458 compared with NZ$700 in New Zealand, Eaqub raises the economies of scale argument.

"Why not! How many lifejackets would you sell in New Zealand."

Disgruntled consumers may never be convinced but Woollam says it is important to remember consumers have a choice, even if limited at times.

Through forums such as nzmoneytalk he says consumers could take matters into their own hands by sharing information, exposing monopolies and putting pressure on retailers where possible.

"We genuinely believe that it will take co-ordination and communication between consumers before we can generate a unified consumer voice."