Thursday, 7 May 2015

Coalition Folds on GST Threshold

Australia's leading mediocrities, the nation's perennially un-innovative bricks and mortar retailers, have won favour from a government bereft of ideas and economic credibility.

According to Fairfax reports, the government will expand the 10% GST to so-called "intangibles" including games, software, music and movie downloads, as well as online subscriptions such as Netflix and Adobe Creative Cloud.

Post-budget, Frydenberg will push to apply the GST to low value parcels entering the country. At the moment, GST is only applied to parcels above $1000 in value. Retailers, led by neo-Luddite rent seekers such as Gerry Harvey, Solomon Lew and Russell Zimmerman of the Australian Retailers Association, have pushed for the low value threshold to be substantially reduced or eliminated, arguing it's a "loophole" that gives "unfair advantage" to overseas retailers, placing local jobs at risk.

Their hypocrisy is breath-taking. For decades, these large and lazy retailers have gouged consumers with massive margins and markups, safe in the knowledge that customers had nowhere else to go. Thankfully, the internet has allowed consumers to call local retailers out on their pricing practices, where identical products can be upwards of 100% more expensive for no justifiable reason. Now, with their scam business model under threat, retailers have turned to the government to do their dirty work, crying poor over "local jobs", when no such evidence is available.

Let's just say the low value threshold is lowered or removed (even though the Productivity Commission says it will cost more to recover the tax than revenue gained) then what? Retailers will be happy and content? Customers will come flooding back through the doors? Not likely.

The fact is these local retail is struggling because the world they operate in has irreversibly changed. Stuck in their ways, they have largely failed to embrace e-commerce*. Threshold or not, there is little that can be done to save these people from themselves.

Whether it's employee penalty rates, workplace "flexibility", high rents or "red tape", Australia's Captains of Retail Industry always have an opinion at the ready, usually seeking some form of government intervention to solve all of their problems. Post-GST, They will merely find another hobby horse to jump on, one that would perhaps be far more devastating to workers (penalty rates, I'm looking at you).

With a declining dollar making overseas transactions less attractive, the lowering of the threshold will likely be a non-event. In principle, I am not against paying tax on overseas purchases, although I do question why a goods and services tax should be levied upon goods and services that are not readily available in Australia. Also, shouldn't the government be targeting the tax-avoiding multinationals first before targeting consumers? Apparently not.

Speaking from personal experience and anecdotal evidence, I will continue to purchase from overseas for a variety of reasons:
  1. Price (yep, even with 10% GST, many items will still be cheaper)
  2. Range (as a photographer, B&H Photo Video > Ted's Cameras)
  3. Service (a quick email response is better than in-store intransigence)
  4. Speed (via courier from USA, quicker than local retailer orders + Australia Post)
The challenge will be whether Josh Freydenberg wants to make revenue collection efficient, or whether he intends to cripple the international freight system. Today, if an item is above the $1000 threshold, it is either held by Customs until the GST is paid (plus, naturally, a handling fee) or the item is delivered and the GST collected by the courier company. Neither of these is a particularly efficient manner of collection.

I hope, unlike their last budget, the government think this one through very carefully before implementing a system that doesn't work.

*There are notable exceptions to this. While Harvey, Lew, Zimmerman, Brookes et al have been cheering the loudest to "level the playing field" other large retailers have refrained. JB Hi-Fi, for instance, has hardly said a peep, prefering to improve their online and in-store offerings to cater to consumer demand. Australian online retail, while behind where the US and Europe are at, has a number of success stories.

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