You can’t say the campaign by the retail lobby against the internet has been a complete failure. It has been very successful at seeding the idea that the current “low value importation threshold” of $1000 is a “loophole”. Henry Rosenbloom, defending the retail oligopoly in Crikey earlier this week, referred to the GST “loophole” several times. And the media routinely refer to the “loophole”.
Well, I guess one person’s loophole is another person’s insidious tax grab, but normally a loophole is an unintended consequence of policy, something unforeseen by bureaucrats and government lawyers when drafting legislation and seized upon by tax dodgers. But the low importation value threshold is deliberate Government policy, not an unintended consequence. And it has been around for decades, long before the GST. Moreover, it has been reviewed on multiple occasions – most recently in 2009.
If you want the full history, go and look at the submissions to the 2009 inquiry by the Board of Taxation. The submission from the Conference of Asia Pacific Express Carriers, prepared by PWC, gives the history back to 1976 of the threshold below which it was deemed too expensive or burdensome to try to collect tariffs, wholesale sales tax or, more recently, GST, on goods privately brought into the country.
Conference of the what and who? CAPEC represents express delivery companies that have benefited from the growth in online trade because they deliver goods ordered online. Hmmm, the retailers didn’t mention that, did they? They focused on the jobs they say have been lost or are at risk in their industry, not the ones created in other industries – an approach that we’re familiar with from other industries demanding protection. And it’s not just the likes of TNT or FedEx. One of Australia Post’s key growth strategies in an era of declining paper-based communication is delivery of online-ordered packages via its extensive network of retail outlets.
Some retail jobs are more equal than others, perhaps.
But, coming back to the CAPEC submission, why does it go back the 1970s? Well, e-commerce had its analog antecedents, as plenty of Crikey readers have pointed out, via catalogues and magazines. In fact one of the retail submitters to the Board of Taxation inquiry, the Sporting Goods Association, acknowledges this, noting that the threshold issue applies both to goods bought via the Internet and magazines.
See, the idea that tax policy should recognise circumstances where it is too costly for government agencies to collect tax, or it’s impractical to force retailers to collect tax on behalf of government, or the costs and inconvenience of imposing the burden of collecting tax on consumers themselves is simply too great, has been established in Australian tax law for decades, long before the internet. So too is the idea of selective application of tax. That’s why we have duty-free shopping, which is nearly a billion-dollar pa industry that employs 3,000 Australians, all around a tax “loophole”.
Incidentally, the threshold where goods became subject to duty in 1976 was $250 – which as the CAPEC submission notes, is the equivalent of well over $1000 now. In one important sense, today’s retailers are actually getting a better deal than previous generations.
As this indicates, none of these issues are new, which is why they’ve been the subject of similar inquiries before
But yes, some industry groups did raise the threat of online shopping with the Board of Taxation. The Australian Toy Association said the same thing as the Sporting Goods Association. I mean, literally – they put exactly the same submission in, just with a different header on it. The booksellers’ association lodged a submission – the local publishing and bookselling industry has long been dealing with the threat of online competitors. And the music retailers’ association did too. They displayed the same iron grip on reality shown by the big record companies in the face of online competition, calling for eBay to be taxed.
But at least those groups, however self-interested, made an effort. What did the big retailers say? What did Harvey Norman, or DJs, or the National Retail Association, tell the Board of Taxation about the low value importation threshold? Well, nothing, at least nothing public. The threat of online retailing was so great just over twelve months ago that none of them bothered to argue the case publicly for lowering or removing the $1000 threshold.
In any event, the Board of Taxation, like Parliament’s Joint Committee of Public Accounts and Audit in 1998 (not online, alas), wasn’t convinced. Like the JCPAA, the Board (chaired, incidentally, by Dick Warburton, who might know a thing or two about retail from stints as Chair of David Jones and Westfield Retail Trust) recommended keeping the threshold at $1000.
So, in summary, there’s no loophole, this isn’t new, and the threshold has repeatedly been examined and found to be appropriate. Everything the retailers say on this issue is self-serving misrepresentations — the lingua franca of rentseekers.
If this issue has already been done to death as recently as last year, why did the Government refer it to the Productivity Commission? Because until the explosion of consumer fury at the campaign, this easily-rattled Government wasn’t sure whether it faced another mining tax-style campaign or not. The much-maligned Bill Shorten, to his credit, moved quickly to respond to the retailers and argue correctly that lowering the GST threshold wasn’t going to fix the retailers’ problems. But a better government response would have reflected the Paul Keating approach to rentseekers – belt them, belt them hard and often.
The determination with which the retailers are pursuing this campaign suggests that they really aren’t getting it. Not so much about the internet (and, yes, we’re all over the line that so-and-so “doesn’t get the internet”), but about what appears to be a more conservative Australian consumer who, post-GFC, is finally paying attention to decades of imploring from policymakers to spend less and save more.
Retailers may be facing a secular change in spending habits that will bring significant long-term benefits to Australia. Like so many industries before them, retailers will simply have to adjust to economic reform. If they really think the GST threshold is the problem, they’re in deep trouble.