Reduce $1000 GST threshold: commission

Reduce $1000 GST threshold: commission

Summary: The Productivity Commission handed down its draft report into the retail sector this afternoon, recommending that the goods and services tax (GST)-free threshold be lowered to below $1000, after calls from major retailers around the country.

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The Productivity Commission handed down its draft report into the retail sector this afternoon, recommending that the goods and services tax (GST)-free threshold be lowered to below $1000, after calls from major retailers around the country.

Trolley

(Portrait of a Shopping Trolley image by Timothy Allen, CC BY-SA 2.0)

The draft report, released to the public today, looks into the globalisation of the retail sector and examines the implications of current policy settings on retailers, and how consumers are purchasing goods.

Currently, purchases made offshore by Australian consumers under the value of $1000 do not attract the mandatory 10 per cent GST. Local bricks and mortar retailers, including Harvey Norman's Gerry Harvey and Myer CEO Bernie Brookes, railed against the policy in January, claiming that the high Australian dollar meant that people would look to buy goods offshore using online stores.

The Productivity Commission found, in its investigations, that the $1000 GST-free threshold only acts as a "minor contributing factor to online offshore purchases by consumers".

Despite this, however, Productivity Commissioner Philip Weickhardt said in a statement today that the commission would suggest lowering the $1000 GST-free threshold for "reasons of tax neutrality ... but only once this can be done cost effectively".

"Under the existing processing systems for incoming parcels, the costs to process the extra parcels would far exceed the additional revenue raised. The commission is proposing that the Australian Government establish a task force to investigate lower cost approaches to processing in both the mail and courier systems, with a reporting deadline in 2012," Weickhardt added.

The report is sure to come as a boon to Gerry Harvey's consortium of bricks and mortar retailers, who even went as far as setting up their own offshore online stores so that they, too, could dodge the tax.

ZDNet Australia contacted Harvey's office for comment on the recommendations made today, but Harvey is out of the country.

Ruslan Kogan, Australian e-tailer and long-time nemesis of Gerry Harvey, said that he sees no problem with lowering the threshold.

"I see nothing wrong with the recommendation about lowering the GST threshold. If we can lower it and do so efficiently, it's a good thing to have a fair playing field.

"It doesn't affect Kogan in any way because all our products include GST," Kogan told ZDNet Australia today.

Kogan added that the report's revelations around the threshold reveal that Harvey and his band had run a null campaign.

"The Productivity Commission Report shows that retailers were using the GST threshold as a scapegoat. It makes it quite clear that the GST threshold is not the reason for the slowdown in traditional retail spending. People aren't shopping online for a saving of 5 per cent, they're shopping online for a saving of 50 per cent. Even if you increase this tax, people will still shop online, as it's still where the best deals will be found."

Aussie e-tail sector "underdeveloped"

The Productivity Commission has also said in its report that Australia has been slow to react to online sales trends, with local online stores accounting for only 6 per cent of total Australian retail sales.

"A number of market analysts ... claim that Australia lags overseas countries such as the US and the UK in terms of online share of total retail sales by two to three years," the report said.

"If so the experience of those countries may provide an indication of potential growth in online retailing in Australia."

The commission said, however, that if recent trends are to be believed, Australia's domestic e-tail sector is about to experience a boom time.

"While Australians have lagged overseas trends in online shopping in the past, they are rapidly catching up. The data show[s] that we spend more per capita on online shopping than the US, but lag the online shopping spend of people in the UK," it said. The UK's percentage of domestic online retail spending accounts for 11 per cent of the industry.

The Productivity Commission's prediction echoes predictions made by PayPal, which has said that the Australian e-tail sector is set to explode by 2012.

Vice president and managing director of eBay Australia Deborah Sharkey said that today's report from the Commission highlights the opportunity bricks and mortar retailers have to get online "in order to remain competitive and relevant to consumers".

The Productivity Commission's report is open for comments until 2 September.

Topics: Government, E-Commerce, Government AU

Luke Hopewell

About Luke Hopewell

A fresh recruit onto the tech journalism battlefield, Luke Hopewell is eager to see some action. After a tour of duty in the belly of the Telstra beast, he is keen to report big stories on the enterprise beat. Drawing on past experience in radio, print and magazine, he plans to ask all the tough questions you want answered.

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14 comments
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  • I am still amazed that Harvey/Brookes are fighting this. Kogan is right (again). I don't buy online to make a few percent savings, I shop online to make significant savings of some 50%, even AFTER shipping is added on. Some examples?

    1) Fender Stratocaster American Deluxe: US$1399 (shipping US$150), AU$2599. Difference (even when including shipping), is some AU$1130.00. Add 10% GST to that and you're still making a MASSIVE saving.

    2) Philips SensoTouch 3D 1290x (top-of-the-range): US$299.99 (Shipping $24.00), AU$699.95. Difference is over AU$400.00 - which is 2/3 off the price! And that's exempt from from GST under even the new draft amount. All that's required to make it work is a AU$9.50 replacement cable or a US/AUS adapter - the unit itself auto-detects voltage and supports international use with 240v, etc.

    3) Exposure Diablo Mk2 Front Light (best bicycle light): AU$247.50 (from the UK, free shipping). Best local shop that has online presence with cheaper prices is AU$385.00. So even a good brick-and-mortar store offering great online deals is still over AU$130.00 cheaper. That's a saving of 30%.

    So we have musical instruments 50% cheaper (even after shipping). We have small, consumer electronics like shavers 60% cheaper (even after shipping). And we have small accessories and bike bits some 30% cheaper (including shipping). It's definitely NOT about people wanting to save 10% GST - and these clowns need to wake up. Australia is being taken for a ride, and we're all paying far too much for things. Pricing is set by "local factors" by vendors, and that's an out-dated "distribution cost" model that is out-of-touch with today's online offerings.

    It's across everything. We pay more for wallets, cars, canoes, jackets, razors, Bluray players, movies, music, dishwashers, musical instruments... everything. The greedy distributors need to go or else we'll continue to shop online. Simple as that.

    It also doesn't help when an order from America takes four days to arrive and something from the east coast takes two weeks. Doesn't make you want to buy within Australia purely for the Australia Post nightmare that is slow, over-priced, non-trackable, delivery.

    Don't get me wrong... I'd rather support a good local store and buy from them... but i don't have endless streams of cash to buy the things I want, so I shop around for the best value for money - and that's overseas and online. Sure, local support and warranty is an important consideration. But when you can afford to buy a second unit as a replacement and STILL have it save you money compared to buying here... there's something wrong, and you can ignore support and warranty.
    NKX
  • As usual, Ruslan Kogan is spot on when he says, "People aren't shopping online for a saving of 5 per cent, they're shopping online for a saving of 50 per cent."

    A case in point: I recently bought 3 books from Amazon that, including regular postage to Australia, cost me $52. Even with GST applied, these books would still have been far cheaper than the $123.00 RRP buying them here from a bricks and mortar store would have cost me. And had I ordered them via mail from an Australian supplier, they would have cost anywhere from $135 to $155. The sums are a no-brainer -- we still would have bought them from Amazon even with a GST added.

    My wife and I buy a lot of things over the internet from Australian suppliers, but only when the price is right. Unfortunately, books are heaps cheaper from overseas sources, so while places like Amazon continue to be available to us, we'll keep using them.
    Michieux
  • This article is valid on many points.

    'Bricks and Mortar' businesses are experiencing a decline in business due to local economic factors. These same businesses have also been slow to move from traditional retailing into ecommerce/etailing (call it what you will). So business is seen to decline and online buying is seen as the cause (which it isn't).

    Yes, more people are shopping online because of the significant savings to be had. There are risks to online shopping, but with some common sense the buyer can mitigate these risks and get significant savings. Who can realitiscally pass up a huge saving in purchasing online?

    What most articles have failed to address is that the cost of operating retail businesses in Australia is not simple, yet online selling (from wherever) is. Local retailers have a lot of unseen overheads that many consumers don't understand (or don't want to). Online retailers are often little more than warehouse distribution.

    Fundamentally, selling goods and services has changed and there is a new method out their (online). Unless traditional businesses embrace or adapt to it they will lose out. Yes, it is difficult to compete against low margin, low overhead businesses, but that's just the way it is.

    GST is neither the cause nor solution to the fact that online goods are going to be inherently cheaper.

    If there is something to investigate, it is why the Australian supply chain is so much more expensive than mere distance and market size would account for. Clearly, some of the big product manufacturers are gouging 'minor' markets. So let's not blame the local retailers for exhorbidant prices, or online sales for significantly undercutting local prices.
    Scott W-ef9ad
    • There seem to be two things against local retailers:

      Many overseas manufacturers ARE gouging retailers, and through them endusers. Their credo seems to be that they will screw us blind, because they can. By using legalistic moves to prevent parallel imports, they can virtually charge what they like, and do.

      And new Australian industrial laws have put up the cost of employing people so much that it is very difficult for companies to survive in the present climate. The govt claims it is interested in improving productivity, but they have actually taken business conditions back thirty years at the same time as these other effects have hit local companies.
      gnome-8be8a
      • You are right, there are two main issues:

        1. Internet ecommerce is inherently cheaper than traditional retailing, as you eliminate many of the overheads and shorten the supply chain.

        2. Business law and tax in general. I'm not going to blame any 'new' legislation, but it's always been very complex to run even a small retail business. More effort goes into business compliancy (tax or otherwise) than running the business itself. Until this element is simplified enormously (don't get me started on taxation) you can't counter item 1.
        Scott W-ef9ad
  • Sure. Drop the threshold to $0. We are still way better off. How do you think Gerry Harvey became a billionaire? By ripping off the Australian public for the last 20 years. I have HN charging over RRP on many electronic goods. I have not shopped there in over 5 years once I realised I was ripped off by clever marketing and tell all my friends to never shop there. I buy most of my books from Amazon

    e.g. MCITP Self-Paced Training Kit (Exams 70-640, 70-642, 70-643, 70-647): Windows Server® 2008 Enterprise Administrator Core Requirements

    Amazon - $125USD + $10 post
    Australia - $249AUD

    So if I pay GST, I still save $100

    For too long we have been ripped off. Our govenrments do nothing about it as it generates more tax income for them.
    brenton1
    • The problem with dropping the threshold is that someone then has to monitor and collect the taxes for imported items. This adds cost, which means an increase in a tax (somewhere), delays in delivery (until you pay the tax), and inevitably a higher tax rate to cover this new overhead.

      Sure, prices will still be cheaper but no you have to run a guantlet of bureaucracy and related delays....assuming they don't introduce more draconian customs rules at the same time.
      Scott W-ef9ad
  • I am sick and tired of retailers like Harvey Norman winging that they cant compete when I can buy the same item from the USA and have it landed in Australia far cheaper than the local stores even with the over priced USA mail or delivery charges. If I buy from the UK it is even far cheaper.
    Lets look at this.
    Some one in the USA or the UK buys something from China or the other Asian producers, have it shipped to the USA or UK, still make what they say is a satisfactory profit and than ship to Australia cheaper than I can buy locally. This makes no sense to me as China is much closer to Australia.
    If these retailers want to compete then maybe they should be setting up in China and selling on line with pickup in their stores, or just selling though their stores like on line. This way they can cut out the leaches in the supply chain that all make a profit on top before we can buy it. (Chinese sales agents, Australian based importers & Australian distributors.
    Major retailers in the USA & Canada like Sear etc have been removing supply chain obstacles for over 50 years. In fact I can buy from the use department stores and still have it delivered to Australia cheaper.
    Dear Australian retailers, stop winging and whining and asking the government to solve your problems, look outside the square, tell the expansive property companies like Westfield’s etc, to drop the expansive rents and get on with your business, and government stop listening to these lobbyists sand wingers and get on with governing Australia
    Gottobesaid
    • You're not comparing apples with apples. An online store can be nothing more substantial than some guy selling stock out of his garage, or perhaps a manufacturer selling out of a warehouse. Comparing that to a large retail chain with it's massive buildings, display areas, advertising, and sales staff (who I believe are on commission) is much more expensive.

      I'm not defending Harvey Norman or his ilk, but to compare direct imports from a Chinese warehouse isn't logical.

      Yes, I agree with your suggestion that Australian retailers need to get online. They need to work on selling product at product at competitive prices, which may mean selling goods which are directly shipped from Chinese manufacturers. Still, this will add some margin to the price but that's the nature of business.
      Scott W-ef9ad
  • The retail industry is hog-tied by the out-of-date systems and processes of wholesale/distribution still operating here.

    Wholesalers/distributors are mainly inefficient, slow and offer poor service, but still expect to make big profits. They are a tax on retailers' profits and service.

    Really, they need to operate efficiently like online retailers overseas with low overheads and quick service to retailers, and then our bricks and mortar retailers will be able to offer better deals.
    Patanjali
  • Here we go again. Another taxpayer-funded task force that will take a year to tell us what we already know - online buyers will continue to buy online regardless of added GST because it will still be far cheaper. And just how is the government going to collect GST from a transaction made between me and a Chinese individual eBay seller, with the payment made from my Paypal account that I keep topped up with available funds?
    splinters
  • "So let's not blame the local retailers for exhorbidant prices,"

    Why not? I mostly purchase from Australian online sources which include GST.
    For example:
    DVD burner from Harvey Norman: (with no customer assistance available) $85
    Same item online from Aussie source (+ GST & overnight delivery) $35.

    Gerry's dummy spit about the GST ended with his threat to open his own online store in competition.
    Seems this blast of hot air has merely resulted in a site that offers one daily overpriced (+ postage trinket).
    grump3
  • It is not only the pricing - go and wander around Myers and actually try to buy something. See if you can find an open till to actually pay for something. Normally shop assistents busy packing stuff and hovering around but they then redirect you to another till, where you queue for ages and who then tell you you normally need to go to that till over there .....

    Alternatively they just do not sell what you want.
    Rossyduck
  • Ditto. I needed a part for my vacuum cleaner.

    --- $120 in Australia plus postage.
    --- $120 from u.s. for TWO including postage.

    Am I really trying to dodge $12 in Get Stuft Tax that we were all told was "dead and gone"?
    Treknology