Report on iTunes more words than action?

Prices for products in the iTunes store in Australia and the iTunes store in the US may not be comparable because of marketing and distribution costs in Australia, according to the Productivity Commission.

(Apple store Shinsaibashi image by plasticpeople, CC 2.0)

As part of its 563-page report (PDF) into the Australian retail industry, released today, the commission looked at the price disparity of companies charging more for their products in Australia than they charge overseas, which is commonly referred to as the "Australia tax".

Public opposition to the Australia tax has grown over the past few months, and has gained the support of Labor backbencher Ed Husic, who has made a number of speeches in parliament on the issue, and has warned that companies that fail to bring their prices into line may miss out on government tenders.

In a case study looking at the Apple iTunes store, the commission said that although the prices may have been higher in Australia due to "strong brand loyalty from consumers, which drives high demand for their products and a lack of competitive rivals", there may be other reasons why prices are higher down under.

"It is unclear whether iTunes USA and iTunes Australia can be regarded as the same supplier. While they may be commonly owned, they are likely to have their own marketing, administration and distribution budgets. Costs associated with the distribution of Australian-specific content and marketing could mean that higher fixed costs apply to the Australian subsidiary," the commission said.

Despite this, these associated costs would only be relatively small, and the commission said that such overheads would not explain the price difference. The Productivity Commission noted that some Australian customers bypass the variation by buying US iTunes gift cards or using a fake US billing address in order to gain access to the US iTunes store, and noted that Apple reduced the price of apps by 25 per cent in July 2011.

More broadly, the commission did not propose a solution to price discrimination in Australia, saying only that there was nothing to stop consumers from finding a better deal overseas, and that it is up to retailers to meet the new competition.

"There will often be price differences in goods from one retailer to the next, and it is up to consumers to shop around and search out the best price — irrespective of whether it is across bricks and mortar or online retailers — given their individual preferences," the commission said.

"The Commission considers that Australian consumers will buy goods where they feel they get the best deal, regardless of retail format, and that retailers that do not, or are unable to, respond effectively to competitive pressures will face serious challenges."

Another constant bugbear for local retailers is that most goods valued at less than $1000 are not hit with customs duty, GST or other charges when imported to Australia. Retailers had argued that in effect, this subsidises the cost for overseas online retailers to sell to Australian customers.

The Department of Treasury has estimated that by not charging GST for goods under $1000, the government has forgone $640 million in revenue between 2010 and 2011.

The commission took the concerns from the retail industry on-board but said that to lower the threshold below $1000 would mean that many more items would have to be processed at our borders, and this would incur an additional cost that would likely exceed any benefit to government. For example, if the threshold was reduced to $100, the government would be up for an additional $500 million in annual GST revenue; however, it would cost the community as a whole approximately $1.2 billion to facilitate that collection.

For this reason, while the commission sees value in reducing the threshold, it has not recommended that the threshold be reduced at this stage. Instead, it has recommended that the government establish a taskforce that will look into how imported goods can be processed through customs in a more cost-efficient way that would allow the threshold to be reduced.

"The government should establish a taskforce of independent experts to design a new system for processing lower-value parcels, particularly those in the international mail stream, and recommending a new process, which would deliver significant improvements and efficiencies in handling. The taskforce should comprise independent members, with the Australian Customs and Border Protection Service [Customs], the Australian Quarantine and Inspection Service [AQIS], Australia Post and the Conference of Asia Pacific Express Carriers providing advice."

In response to the report, Husic told ZDNet Australia that it was "lots of words and not much action".

"It was disappointing, considering the strength of tone contained in the Commission's draft report," he said.