Everyone knows that life is tough right now for Australian retailers, right? So why does the Australian Government insist on continuing to make it tougher?
There is a double standard at the moment that is hurting the Australian retail industry and it comes in the shape of the GST. More particularly, this double standard comes into effect in the shape of overseas, online retailers.
Currently imported goods, other than tobacco and alcohol, valued less than $1,000 avoid being subject to the GST. Overseas retailers don’t have to collect the GST. This gives them an immediate price advantage. It is like the government paying a subsidy to overseas competitors at the expense of local firms. This is very bad taxation policy.
In addition to the GST, any customs duty that might be due is also avoided. In some cases, the price advantage to overseas competitors is 23 per cent of the end price.
The same advantage does not exist for Australian retailers who are also attempting to sell online. If an Australian company sells a product online, it collects the money and pays the GST to the government. And do you know what? Most Australian retailers are ok with this. All we want is a level playing field.
To counteract this, some retailers have established off shore distribution centres, sending more jobs off shore.
The National Retailers Association, through executive director Garry Black, has made representations to the Productivity Commission, which seems to agree in principle that the current situation is not ideal. There has also been a report into the retail industry put out by the Federal Government that looked at the economic structure of the retail industry in Australia, and this is one of the issues. Clearly they identify people who buy on line from overseas companies don’t pay GST, but if you buy online from Australia, you do.
The truly absurd result of the inequity of the current situation is that it is costing the government around $800 million in uncollected GST revenue – that is $800 million that is effectively acting as a subsidy to overseas competitors to compete with Australian-based businesses.
Now consider the fact that online sales are currently growing by 25 per cent per annum, and it is clear that the longer it takes to resolve this problem, the more it is going to cost the Australian public.
There is an obvious solution: lower the threshold from where the GST begins to apply on online purchases – other countries have much smaller limits whereas, in Australia, it is $1,000.
Surely there is something that can be done to lower the limit. The government’s excuse is that it would cost a billion dollars to police it, but other countries with far-higher volumes than Australia can police it, so why can’t we?
Most people are, strangely enough, law-abiding citizens. If you dropped the limit and had to declare it, I think it would increase the revenue stream substantially – the government would be receiving some revenue as opposed to none.
Given the vast majority of Australians who buy from overseas would do so via an Australian bank account, why can’t it be regulated to collect the GST on the transaction? The cost of doing that would be virtually nothing because it becomes a function of the banking system; however, this would require the cooperation of the banks.
There is a multiplying effect to this as well. In the jewellery industry, there is a five per cent tariff, plus the grossed up value of the imports and importation costs. This is an area that has to be addressed. By virtue of the fact that the online market is growing substantially, the volume of lost revenue is going to get larger and the cost disadvantage to Australian retailers is going to become quite apparent. When the dollar hit parity earlier this year, it only served to heighten the problem.
Already retailers are finding it tough to cover fixed costs with bricks and mortar stores. There are things that we need to do to make it more equitable.
Why are we giving overseas supplier a competitive advantage at the expense of the Australian tax payer and employment? We need to make a start by lowering the limit and getting people to declare and pay the tax on imported purchases.
This is an issue that we all need to think about pretty seriously. The politicians at the moment do not want to do anything that looks like increasing tax, but the system that is currently in place only leads to all Australians being worse off.
Ian Winterburn is CEO of Wallace Bishop.