The recent $200,000 PR blitz by retailers has fallen as flat as their pre-Christmas sales, with the alliance of billionaires and private equity failing to garner any public support for their push to have GST applied to goods bought online. A government advisory body has recommended that the costs of collecting such a tax would outweigh its benefits, while consumers rightfully argue that while retail giants are calling for more taxes to “level the playing field”, they are appear to be very slow to lower their prices when the Australian dollar rises — boosting their profit margins.
The retail giants, led by billionaire Gerry Harvey (who last week appeared to back off from his stance after being widely ridiculed), have been angered at the rise of online shopping, buttressed by a high Australian dollar. This has meant that shopping online overseas and paying for delivery is a far cheaper option that buying from an Australian retailer. Of course, while a lack of GST is one reason for this, the other reasons include better product range, quicker delivery and most importantly, far lower prices.
There is the additional problem: that is, retailers are effectively requesting extra taxes to be levied on Australian shoppers — the very people they are trying to appeal to. Memo to billionaires: people tend to not like paying tax.
But worse than the idiocy of the campaign is the sheer hypocrisy of the retailer billionaires, who have suddenly morphed into taxation champions for the Australian people.
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Myer chief Bernie Brookes told the Financial Review recently that “it will be hard for the consumer to see this for what it is, but if the government doesn’t collect the same duties and taxes from overseas retailers as it does from domestic retailers, then they will push a lot of us to go overseas, resulting in loss of jobs and working hours … the government is losing between $1.1 billion and $2.9 billion in potential taxes that could be spent on Australian hospitals and schools.”
Yes — that is the same Bernie Brookes who is CEO of Myer and was originally hired by a private equity company called TPG. TPG made about a $1.5 billion profit after buying Myer from Coles Myer and a few years later, floating it to gullible Australian investors for $4.10 a share. TPG spent millions on expert tax structuring advice to ensure that it (and its wealthy investors) didn’t pay capital gains or income tax in Australia on the $1.5 billion it reaped from the sale, with the funds quickly being diverted to tax havens such as Luxembourg before the ATO was able to act. One suspects that the $1.5 billion in profits garnered by Brookes’ former employer would also have been able to help some Australian hospitals and schools — as would Brookes’ 2010 salary of $5.4 million.
Then there is the former head cheerleader, billionaire Gerry Harvey (who relinquished his role after being criticised by most of the Australian media). While Harvey has been one of Australia’s most successful retailers over the past four decades, the shameless self-promoter has had a far difficult time in recent few years, with Harvey Norman shares dropping by 60% since 2007. Net profit at Harvey Norman has been flat since 2006, while Harvey’s disastrous and ill-timed foray into Ireland had resulted in substantial losses for shareholders.
Meanwhile, Harvey Norman also holds $1.8 billion worth of commercial property on its balance sheet, and between 2006 and 2009, boosted profit by more than $200 million due to constant upwards revaluations of its property book (a situation that could rapidly reverse, especially given the somber outlook for commercial property). And of course, publicly complaining about a near irrelevant tax on overseas items helps distract investor attention from the fact that Harvey, and his wife (and Harvey Norman CEO) Katie Page, were paid $1.1 million and $2 million last year, while shareholders have witnessed the value of their investment slump.
Among the other retail giants calling for the new tax are Angus & Robertson and Borders — the massive book sellers who are owned by wealthy private equity firm Pacific Equity Partner. Borders’ involvement is especially strange, given the retailer tends to sell many titles for a substantial premium over the recommended retail price. For example, a book written by this author sells for $37.95 at Borders in Melbourne but only $18.79 on the US website Amazon.com (despite the title being shopped overseas and back again). Even if GST were imposed on the Amazon purchase, it would still be about 55% cheaper than buying from the local retailer.
Other private equity owned retailers, such as Witchery and House are also rallying for the imposition of a GST, while presumably planning doing their best to avoid paying any tax in Australia to maximise the returns for their investors.
Another to call for the GST on overseas goods is billionaire retailer Solomon Lew, who is associated with more than half of the companies protesting the lack of GST, such as French Connection, Jacqui E, Jay Jays and Just Jeans. Lew claimed that “there is an urgent need to tackle the uneven playing field created by GST and duty loopholes for offshore online retailers and importers of goods under $1000 … it’s a battle between local retailers and offshore retailers and the government is backing the offshore guys.”
This is of course the same Solomon Lew who was investigated for five years by ASIC after the controversial Yannon transaction, which involved Coles Myer shareholder underwriting a share deal involving Lew’s privately owned company. The deal ending up costing Coles Myer shareholders $18 million (some of it was later repaid) and appeared to involve Coles Myer paying millions of dollars to Lew to allow him to increase his stake in the company. After the lengthy investigation, former ASC chairman Alan Cameron noted that the main reason that criminal charges were not pursued against Lew was due to the time taken to investigate the matter and the complexity of the case (not necessarily Lew’s innocence).
Meanwhile, Lew made a tax-free profit of roughly $1 billion on his original purchase of Myer Emporium and last year paid no tax after selling a Melbourne city property for more than $30 million, after paying only $810,000 for the property in 1981.
Independent senator Nick Xenophon put it best when he noted that “it’s like watching Goliath pretend he’s David … the extraordinary market power of these very businesses has put enormous pressure on the small business sector.”