The push for online GST misses the point

It seems, during the holiday period, that new Assistant Treasurer Josh Frydenberg received a spirited visit from the Ghost of Retail Christmas Past.

This strange figure, at once like a child and like an old man, must have been sent by the department stores and retail interests of yore who have lately felt the wintry blast of international competition and long to return to the cosy fireside of seasons gone by.

The Ghost recalled a time when large Australian retailers enjoyed fine margins, comfortably ensconced thousands of miles from their nearest competitors, and consumers had to travel to their stores to examine the cut of the cloth.

Perhaps, whispered the Ghost in a voice soft and gentle, our shopkeepers could return to this golden time with a little assistance from the realm of the Treasury?

This seems to be the most reasonable explanation for Frydenberg's essay this week urging that consumers should pay the GST on goods and services bought from overseas that cost less than $1000 and are currently exempt from the tax.

“This is not a level playing field. Australian retailers effectively face a reverse tariff, and the issue unites politicians and unionists across the party divide,” Frydenberg wrote in an opinion piece.

Retailers have been lobbying for this change for several years, saying the loophole gives foreign companies an unfair advantage when selling to local consumers. The charge has been led by struggling department store Myer and by Gerry Harvey.

Yet the local magnates and the new assistant treasurer seem to fundamentally misunderstand the reason that Australians have belatedly embraced the online market mecca around a decade after it became routine for American consumers.

Consumers, at last, are spoilt for choice. And the cost of goods purchased from overseas, often for the identical item, can be 40, 50 or 60 per cent cheaper than the same item found in an Australian store.

Households are not making their purchasing decisions to take advantage of a 10 per cent difference in tax; they are buying from a virtually unlimited range at prices that would never be matched by local stores.

And that explains why, of the $16.3 billion spent online in the year to November, National Australia Bank research shows that more than a quarter goes to offshore retailers. Around $4 billion is not landing in the registers of domestic stores.

Consumers are still happy to shop, but spending patterns have changed radically over the past five years. That is clear in the 10 per cent annual rise in spending on takeaway food and restaurants, and in the jump in trade in late December when department stores started discounting early. Shoppers have been trained to wait for sales.

There is also the comfort factor of shopping from home, at a convenient time, rather than in an ugly, anonymous mall surrounded by miles of parking.

Previous government reviews found that the cost of collecting the GST on foreign packages would far outweigh the income that would be raised as a result.

One review said the modifications required would include: requiring Australia Post and other couriers to collect and remit the revenue; a redesign of international mail gateways; coordinating data systems between Australia Post and Customs to exchange electronic information; and the list goes on.

The Productivity Commission when it examined the issue flagged collection costs of some $1.2bn for an increase of just $500 million in GST revenue.

It doesn't make economic sense. The federal government might find that imposing tough new rules on multinationals accused of tax avoidance on Australian income could improve Treasury's revenues with a much smaller outlay. The Treasurer appeared to back away from these plans in the MYEFO, which said the government would not proceed with the new rules.

For now, the 13 per cent slide in the Aussie dollar over the past four months from US93c to US81c is probably doing as much as the retail lobbyists could hope for in dampening foreign online purchases by making those goods steadily more expensive.

Frydenberg described the willingness of state and federal governments to deal with the GST loophole as a “test case” for the nation's ability to adapt to the growing digital economy.

The enthusiasm of Australian shoppers looking beyond our shores to directly source a vast range of items at cheaper prices suggests that it is the retailers who have been slow to adapt to the growing digital economy.

They would hate to see a Ghost of Retail Christmas Future where consumers show an ever increasing willingness to buy offshore and become individual importers of foreign goods.