The Federal government has agreed to look into lowering the GST threshold for items purchased on overseas shopping websites at the behest of state treasurers.
At the Standing Council of Federal Financial Relations meeting in Canberra on Monday, State and Federal Treasurers congregated to discuss the GST Distribution Review, which was released late last month and claimed that the GST value threshold for goods purchased overseas at AU$1000 is too high. The report recommended that the limit be lowered immediately to AU$500, which was disregarded by the Federal government.
Bricks and mortar retailers view lowering the GST threshold as a way to stay competitive in the face of increased pressure from foreign online shopping websites. But a Productivity Commission report noted that lowering the limit could end up costing the government more, thanks to Australia's flawed parcel processing system.
Still, the Federal government conceded that the current AU$1000 GST threshold is quite high compared to other countries.
The states had also complained that the current GST distribution model means that they are missing out in billions of dollars in potential revenue.
After the meeting in Canberra, the Federal government agreed to set a path for lowering the threshold by the end of 2013. No commitment has been made on how much the threshold would be pushed down.
"The state and territory treasurers have been united in our push to expedite the lowering of the GST threshold for imports," NSW Treasurer Mike Baird said in a statement. "We are very pleased the Commonwealth has taken on board our recommendation to pursue this important tax reform, which is not only in the long term interest of the states, but also the nation."
While the Federal government has agreed to analyse the GST threshold over the twelve month period, Federal Treasurer Wayne Swan has ruled out increasing the rate of the GST, an action that the Organisation for Economic Co-operation and Development (OECD) recommended.
"The one thing the Commonwealth won't be doing today is that we will not be considering any increase in the rate of the GST or any case to broaden the base of the GST," Swan said prior to the meeting. "That is the lazy way to go about tax reform, and doing that would hit the lowest income earners in our community really hard."
"The states can reform their own taxation systems if they wish, and one of the taxes they should get rid of is stamp duty, because that really hits a lot of Australians really hard."
The state treasurers have denied that they wanted to push for an increase in the overall GST, but some have expressed support to halve the threshold for imported goods, as recommended by the review report last month.
"I do think it's technically feasible for us to do," South Australian Treasurer Jack Snelling told the ABC. "It protects our local retailers from unfair competition from overseas, and also protects the integrity of the GST."
But IBISWorld Senior Industry Analyst Narem Sivasilam told ZDNet earlier this month that such a move would be ineffective in giving local retailers a leg up, since most Australians buy from domestic online retailers.