The Productivity Commission inquiry has been examining the future of the `tax free status’ for imports under $1000. Recent
reports state that Australia stands to lose 88,000 retail jobs over the next five years if the government does not take action and begin levying tax on imported items bought online and worth less than $1000.
FEO spoke with National Retail Association executive director, Gary Black who is calling for the tax free threshold to be abolished. We asked him why, and what impact it could have on the Australian retail sector.
As Executive Director of the NRA, Gary leads a national organisation that provides a range of professional services to industry and represents the interests of the retail to governments, the media and the wider community.
Why is it so important for the GST tax free threshold to be eliminated? What significant changes will it make to the industry and retailers if abolished?
It is very important because some sectors of the media or some sectors of the community have tried to trivialise this issue. For example they say that sales lost to foreign retailers via online mechanisms might only amount to a couple of percent to total retail trade, but this is a distortion of the figures. When you look at the specific categories that are much more likely to have products traded online, you can readily include the impact and at the moment that is anywhere up to 10% and some as high as 20%. These speciality retailers are telling us their growth and their business viability has been undermined by this shift to offshore buying.
This is one of the distractions if you like, the strong dollar is a matter for separate review, because most of the retailers that are impacted are large importers.
They might import 80 to 90 % of product, the bricks and mortar retail sector is also benefiting from the high dollar. The significant difference on line is if you buy today you benefit from the currency exchange but retailers with extensive inventory when bought at 80 to 90 cents, well that stock cannot be sold to reflect the current exchange price.
There is this lag before they can replace that inventory with new inventory at the current exchange rate. A stronger dollar is a factor, but it is also helping make to Australian retailers more competitive with U.S retailers.
What will happen if the threshold isn’t abolished?
Progressively the businesses of thousands and thousands of Australian retailers will be undermined. Our modelling tells us that up to 80, 000 Australian jobs will be lost in Australia’s retail sector over the next 5 years that is a contraction of about 10% of the retail workforce.That is entirely consistent with what we think will be a 20% reduction in turnover for certain categories of retailers. Some retailers will be more exposed to the online competition than others, but those that are most exposed can probably expect to see sales diminish by about 20%. What online shopping does is facilitate price comparison. If you are shopping online and comparing a product which is being sold by an Australian online retailer with a product being sold by a U.S-based retailer, this price differential, which ranges from 11 to 23 %, that is sufficient, more than sufficient, to cause the buyer, the shopper to favour the lower price. It is self-evident. So the other consideration here, that is not necessarily well covered, some people say well even if GST was applied to foreign sales it wouldn’t be sufficient to persuade the Australian shopper from buying overseas, it isn’t only GST, it is also duty and customs fees. In terms of apparel, duty is 10% – an Australian online retailer has to pay duty fees, a custom clearance fee and GST. For foreign retailers that supply direct to the consumer and under the $1000, threshold none of those charges apply. Australians are effectively subsidising the foreign retailers in terms of clearance activities by customs.
The simple proposition that everyone is coming up with is it’s just not fair. That is the matter that the Productivity Commission has to resolve, if it’s got the courage.
What about the new jobs this online phenomenon will create?
It’s also important to point out that sometimes people categorise this as structural change, change that has to happen, some jobs are lost in traditional activity but new jobs are created. However there is not going to be much of a beneficial or substitution effect here. We know that Amazon hire around 30,000 people worldwide and 0 in Australia, eBay hire 16,000 worldwide and about 30 here.
There may be some increased employment opportunity for express carrier drivers, they will be the beneficiary or Australia post might increase employment a little and warehousing employees, but nothing can offset this, there is no significant positive substitution effect for this so called structure change.
The NRA have compiled a survey to garner facts and data that may help convince the Productivity Commission that the threshold should be eliminated – what is your personal message to retailers to get them to complete the form?
While we have lodged our initial submission, the retail feedback will remain valuable and we encourage retailers who are impacted by this inequitable tax and customs regime to complete our survey or let us know, and contact us direct.
The PC process is not one stage, it releases an interim report in August and then embarks on a series of consultations and so there will be many more opportunities to put further or updated information to them.
So I think really the opportunity to contribute will remain open until September.
If you want to contribute, head to the link below and complete the NRA survey;