A coalition of Australia's largest retailers have lobbied against the $1000 tax-free threshold for purchases made through overseas ecommerce websites. If only they would direct their energy towards catching up with the rest of the world.
Australia's largest retailers are lobbying against the $1000 tax-free threshold for offshore purchases made online. Their claim is that it creates unfair competition.
Australia's consumer advocacy organisation Choice has asked retailers to "raise their game" and should not discourage customers from searching for the best deal.
Retailers in Australia are in the dark ages when it comes to e-commerce compared to other countries in Asia, North America and Europe. Many retailer websites lack offering online product catalogs let alone the ability to purchase online. Many retailers still have "catalog" sections on their websites which simply provide an online version of their latest print sales catalog. The only real functionality on these sites are the store locators to again try to get you into their physical stores.
The lack of online shopping services by the largest retailers in Australia has nothing to do with consumer behaviour. Broadband penetration in Australia is strong with 62% of all Australians having broadband Internet at home according to the Australian Bureau of Statistics. And Ibisworld reports that 64% of Australians online made a purchase online in the 12months between 2008-2009 and is expected to grow at 5.4% through to 2014/15.
There is likely a lack of retailers to support ecommerce mainly due to the erosion it has on their margins. Electronic commerce allows consumers to shop around online, and then buy online. This model can cause increased price competition which can drive down profits from retailers.
Retailers could make up for this on volume, which is perhaps the key to a shift from an offline to an online shopping economy. In the USA during the late 1990's when online shopping was just starting to become popular, the US Congress passed legislation limiting the tax imposed on online shopping. This meant that shoppers purchasing out of their state could get their purchases tax free. The result gave the online shopping economy in the USA the boost it needed to get retailers to shift to support the online consumer.
So instead of investing in lobbying against overseas competition, perhaps Australia's large retailers could invest in building online shopping environments for their customers, and perhaps lobby the Australian government to provide tax breaks for online shopping to give the digital economy a boost. The end result would be better for consumers. And for retailers the shift from costly brick-and-mortar retail stores to online stores could happen quicker to the point where margins wouldn't be at risk, as the reduction in costs to support online shopping would offset the reductions coming from increased price competition between online retailers.
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Hi Craig,
Interesting article. It is dificult to have much sympathy for Australia’s mega retailers, especially considering their track record when it comes to taking advantage of technological developments to squeeze suppliers, and their agnosticism when it comes to country of origin for manufactured products. Why should we care about where the “shop” is located when everything else in the value chain is based overseas?
However I’m interested to know more about the implications of the absence of GST on <$1k purchases. How much government revenue would this represent? This is an issue which should matter to all Australians, as the lost revenue would need to be made up somewhere else. I'm not sure how many would be happy to subsidise one type of consumer via this tax break. Are there other approaches contemplated, such as eliminating ALL GST on <$1k purchases, and consequently increasing the GST rate on remaining items? This could deliver other efficiencies… imagine how many calculations go on everyday to determine 10% of the various small purchases made in this economy.
Hi James,
All great points!
I’m not sure how much government revenue is at-risk if legislation is passed say allowing all Internet purchases under $1000 to be GST free. I would suspect it’s a material amount, and that several government-funded projects could be affected. But this is a complex debate. For example, on the demand side, there are questions around demand elasticity and the impacts of GST-free purchases. The outcome of GST-free shopping could be that the amount spent by consumers goes up at a much higher rate than the amount lost in GST revenue. Government revenue lost from GST could be replaced by income tax (not increasing tax rates, but rather the increase in tax collected from business income). Or something more realistic could be that government-owned organisations like the Australia Post would see an increase in demand for its services on the back off e-commerce, resulting in higher revenue. Lots of different ways to look at the government revenue equation
But while things like taxation, fiscal policy, government funding, etc. are important, I think the key question is: “is Australia ready to be a digital economy?”
The key enablers seem to be in-place on the demand side: consumers have access to the technology and exhibit a desire to shop online. The fact people are going overseas to shop online show that many consumers are evolving quicker than Australian retailers.
Retailers do not seem to be matching the demand side of the current “digital economy”. This is clear by the fact most large retailers do not provide online shopping for their consumers, with many consumers opting to shop overseas. If the reason for not providing e-commerce is it’s too risky, this is where the government could help by offering GST-free shopping. This would result in a substantial incentive for consumers to shop online, dramatically increasing demand for shopping online, and therefor substantially reducing the risks for retailers in building e-commerce websites.
The end result would allow the digital economy to grow quicker, allowing for all the benefits of a digital economy to kick-in, such as:
- Increased competition, not only between retailers but also from suppliers (lower barriers of entry for e-commerce, direct-sales from suppliers, etc)
- Market expansion (access to the market is driven by Internet access as opposed to physical locations of retailers)
- Supply-chain efficiences from centrallised inventory management & distribution (enables “just-in-time” manufacturing)
- Market diversification, including increased bundling of products/services
- Product/service innovation, where product lifecycles are shortened allowing for newer products to hit the market quicker
As for the lost revenue from GST, I would think a GST-free period would not be something long-term, but rather a short-term incentive to boost the digital economy. It’s like an aeroplane: it burns more fuel taking off, less once it’s cruising in-flight. So it should be reasonable that once the digital economy has had it’s growth spurt, that the government returns to setting normal fiscal policies.
Regards,
Craig