Wednesday, December 1, 2010
I've been reading with interest the debate around lowering the threshold for GST being applied to imports. At the moment GST isn't applied to imports under $1000. So if a consumers purchases, for example a pair of shoes from an overseas online retailer, no GST is charged or paid. If they purchase from an Australian retailer, like Shoes of Prey, they're charged GST.
A number of prominent Australian retailers including Gerry Harvey, and retail industry bodies like the Australian Retailers' Association and the Council of small Businesses have been calling for a reduction in the threshold for when GST is applied to imports from $1000 to $400.
The calls have come about because Australian retailers are concerned that the higher Australian dollar is resulting in increased competition from overseas online retailers. While that might be true and a reduction in this threshold would help Shoes of Prey, I don't think it's the answer or the appropriate thing to do. Cost estimates have shown that the cost of charging this GST to consumers would outweigh the revenue gained, so introducing the tax would essentially be adding an inefficient bureaucracy for the purpose of protecting Australian retailers.
There are already 2 huge natural advantages Australian retailers have in selling to Australian consumers:
1. There are no international shipping costs, or no shipping costs at all if goods are picked up in store.
2. There is a much faster shipping time, or no shipping time if goods are picked up in store.
These advantages far outweigh the 10% saved by GST not being paid on sub $1000 purchases.
The problem is not that foreign retailers have an advantage in consumers not having to pay GST on purchases under $1000, this is more than countered by the advantages outlined above. The problem is that the offer from many Australian retailers is often sub par and isn't competitive with what consumers are offered in overseas markets. Online retail is simply opening up the retail market to worldwide competition.
If Australian retailers can't compete in that space given the advantages they have with cheaper and faster shipping, they need to look at improving their offer so they can compete. We have some great innovators in the Australian retail landscape, but the lack of competition to date has meant that in some categories like our large department stores and grocery chains and to a lesser extent electrical retailers we have had only limited competition so retailers are used to living large on fat margins and aren't used to innovating. And that's why Australian consumers are shopping overseas, the offer is so much better. A broader range of products is offered, the prices are cheaper because the retailer's margins are lower, and the goods can actually be purchased online - many prominent Australian retailers still have very poor or non-existant online retail offerings.
If Australian retailers want to encourage consumers to spend at home they need to improve their offer and they should be looking at the opportunities online retail is opening up for them to sell overseas. If they don't they're missing a great opportunity and Australia is going to be left with a lacklustre, internationally uncompetitive retail industry.
Posted by Michael Fox at 2:58 PM