Howard GST ruling haunts retail
The threshold, which retailers say encourages people to shop at overseas online stores, was set at $1000 in 2005 for all goods arriving in Australia by post, air or sea cargo.
Letters accessed under freedom of information laws show two ministries closely involved in the issue - Treasury and customs - had pushed for a $500 limit.
Moreover, Mr Howard was told a higher GST-free threshold could have negative consequences for businesses and tax revenue.
Assistant treasurer Mal Brough, writing on behalf of then treasurer Peter Costello, told Mr Howard in 2005 that a $1000 threshold could damage local businesses.
"The implementation of a $1000 across-the-board threshold could create an incentive for consumers to import low-valued products [of less than $1000] from overseas to avoid paying Australian taxes, which in turn could have an adverse impact on Australian businesses," Mr Brough wrote in September 2005.
Mr Brough, a Liberal candidate in the coming election, said the higher threshold would cost millions in forgone GST receipts each year, with the possibility this revenue hole could expand "significantly over time". Customs minister Chris Ellison also argued the threshold should be set at $500, saying this struck the right balance between the need for simplicity and revenue.
Mr Howard opted for the higher $1000 level, citing the government's commitment to "reduce the burden of regulation".
Other information on how Mr Howard reached his decision was redacted by the Department of the Prime Minister and Cabinet.
"I recognise in arriving at my decision that option three [the $1000 threshold] represents a greater potential loss in GST revenue to the states and territories than either of the other options canvassed in your letter," Mr Howard wrote to Mr Ellison in September 2005.
The department said it was likely to have advised Mr Howard on the decision but it could not find the relevant briefing documents.
The threshold has been a persistent gripe of the retail industry in recent years, due to the rapid growth in online shopping, helped by the strong dollar.
Retailers say Australia's threshold is unusually high, with Britain setting its limit at £18 ($30) and Canada at $C20 ($21). Cash-strapped state governments argue they could raise hundreds of millions more by lowering the threshold.
But a Productivity Commission review in 2011 found lowering the threshold would not raise enough extra revenue to justify the extra cost of handling millions more parcels. Treasury is now investigating the issue again.
Tax Commissioner Chris Jordan said on Wednesday lowering the threshold would probably involve requiring credit card companies or overseas retailers to charge GST.
"It has got to be a technology solution," Mr Jordan said. "It can't be an old-fashioned solution of the post office or customs putting stickers on parcels and assessing how much is to be paid."
Frequently Asked Questions about this Article…
In 2005 John Howard set the GST-free threshold for imports at $1,000. This matters because a high threshold encourages online shopping from overseas sellers, which retailers say can reduce Australian sales and state GST revenue — issues that affect retail sector profitability and government budgets investors watch.
Letters show Treasury and Customs pushed for a $500 threshold because they believed a lower level would better protect local businesses and tax revenue. Officials argued $1,000 could create an incentive to import low‑value goods to avoid Australian taxes, harming domestic retailers and costing millions in GST receipts.
The article reports that officials warned a $1,000 across‑the‑board threshold could encourage consumers to import low‑value products under $1,000 to avoid GST, which would reduce demand for local retailers and create significant forgone GST revenue for states and territories over time.
Retailers say Australia’s $1,000 threshold is unusually high compared with Britain (about £18, roughly $30) and Canada (about C$20, roughly $21). For investors, those comparisons matter because a higher threshold can give overseas e‑commerce sellers a competitive advantage over Australian retailers, affecting sector dynamics.
A 2011 Productivity Commission review found lowering the threshold would not raise enough extra revenue to justify the additional cost of handling millions more parcels. That analysis is relevant for investors assessing the likely net benefit of policy change to government budgets and logistics costs.
Tax Commissioner Chris Jordan said lowering the threshold would probably require a technology solution, such as requiring credit card companies or overseas retailers to charge GST at the point of sale, rather than manual checks by post offices or customs.
Cash‑strapped state governments argue lowering the threshold could raise hundreds of millions more in GST revenue. For investors, potential changes could influence state budgets and services, and affect retail and e‑commerce company earnings depending on how collection rules change.
Yes — Treasury is investigating the issue again. Investors should watch for policy announcements on lowering the threshold, technology changes for GST collection (like obligations on card companies or overseas sellers), and any assessments of costs versus revenue that could affect retail sector revenues and state finances.
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