Doubts raised over GST windfall on imported goods

National Australia Bank chief economist Alan Oster has demolished the argument put forward by retailers that scrapping the $1000 GST-free threshold on imported goods would trigger an $800 million windfall for state revenues, arguing it would fail to raise even half that.

Mr Oster, a former 15-year veteran of the Treasury, said reducing the GST-free threshold to zero would raise $360 million in GST revenue at best.

He also said because the average price of a purchase online was so low, and getting lower as cheap mobile apps and iTunes downloads increasingly fill online shopping bags, it meant the $1000-GST free threshold would need to be extinguished completely just to raise a meaningful amount of tax revenue.

"If you lowered the threshold from $1000 to $500, you would raise $40 million [in GST revenue]; if you lowered it to $100, you would raise $210 million; if you lowered it to $25, you would raise $310 million," he said. "And if you got rid of it completely, you would get about $360 million."

His projections were based on the data flowing from the activity of millions of NAB customers.

"This is not a survey, it is hard data based on 2 million of our [NAB] transactions per day."

The best-case scenario of only $360 million in revenue is at odds with the $800 million touted by retailers and their lobbyists.

In meetings with Treasurer Joe Hockey last week, state treasurers used the $800 million figure to strengthen their case for a change in the GST legislation to capture taxes on the millions of goods, mostly bought online, that come into Australia daily.

An Ernst & Young report commissioned by the National Retail Association said potential GST revenue from doing away with the threshold was $819 million in 2013-14 and growing to more than $1 billion a year within the forward estimates.

But Mr Oster, speaking on the release of NAB's latest online retail sales index, said those figures were just not attainable.

There was also the problem of administration as customs and post officials were forced to open and check the many millions of parcels coming into the country each year, with the cost of revenue collection potentially outweighing the benefits of a lower or zero threshold.

"That's for someone else to work out," Mr Oster said. "We don't know how they would do it, but basically in a lot of ways it's not a lot of money because the [average online] price is not high and to get a large amount of money you need to go right to the bottom because you have a large growing sector like iTunes and the average price there is $9."

Latest research from NAB showed the average online transaction in October was only $41.