Retail provides more jobs than any other sector in the economy, employing more than 10 per cent of the workforce — over 1.2 million, people according to the Australian Bureau of Statistics.
The sector faces many challenges in labour market flexibility, trading hours, local planning laws and also with the GST threshold that applies to online overseas sales.
Since 2000, Australians pay GST on goods and services purchased from Australian retailers over the counter or online, but not those bought from overseas suppliers that cost less than $1000.
This is not a level playing field — Australian retailers effectively face a reverse tariff — and the issue unites politicians and unionists across the party divide.
Former Shop, Distributive & Allied Employees’ Association national secretary Joe de Bruyn has said, “It is costing jobs in the retail sector in Australia as people are buying overseas where GST is not applied.” NSW Premier Mike Baird is a staunch advocate for lowering the threshold, and the South Australian Treasurer, Labor’s Tom Koutsantonis, has said lowering the threshold “makes complete sense”.
When in office, Tasmania’s Labor premier Lara Giddings said, “In my view it is fair and reasonable that if you have a tax on goods and services in the high street shops that it ought also be on the online shopping.”
Last year, former Victorian Labor premier John Brumby said, “We should immediately move to reduce the erosion of GST collections from overseas internet purchases. Not only does the current situation place Australian suppliers at a competitive disadvantage, it is costing the states hundreds of millions of dollars in lost revenue.”
Australia is also an outlier with respect to the $1000 threshold. In Canada, the threshold is $C20 (20.98), in the UK it is £15 ($28.42) and in the US a consumption tax applies to all online overseas sales.
In each case additional processing and handling fees are also imposed. If these nations can adopt a lower threshold, why can’t we?
Reviews commissioned by the previous government and undertaken by the Productivity Commission in November 2011 and the Low Value Parcel Processing Taskforce in July 2012 looked at the feasibility and cost effectiveness of lowering the threshold.
Both reports said the cost of compliance was relatively high but the Productivity Commission said “there are strong in-principle grounds for the low threshold exemption for GST and duty on imported goods to be lowered significantly to promote tax neutrality with domestic sales”.
Importantly, the cost of enforcing a lower threshold is coming down as payment processes adapt to increased online demand.
Indeed the trajectory of online sales is another reason for acting now. According to analysis by the National Australia Bank, Australia’s online sales in the year to August 2014 were worth $15.7 billion, of which 25 per cent went to international retailers.
International mail parcels doubled between 2006-07 and 2010-11 to more than 48 million. Since then the volume has nearly doubled again.
Significantly, between 2008- 09 and 2010-11 the number of goods valued below $1000 increased by 58.2 per cent while the number of goods between $1000 and $5000 grew by only 18 per cent.
Importantly, the rapid growth is in lower value parcels — 80 per cent of which are under $100 and 90 per cent of which are under $500 — all of which escape the GST net.
A good tax system is characterised by simplicity, efficiency and fairness. It is not fair to taxpayers, or to retailers or their many employees, to exempt overseas online retailers from the GST even if some consumers are enjoying the ride.
This is why the online GST threshold will be looked at in the upcoming tax white paper.
The willingness on the part of governments, federal and state, to deal with this issue is a test case for the nation’s ability to adapt to the growing digital economy.
Josh Frydenberg is the federal Assistant Treasurer.