Slapping GST on online purchases worth less than $1000 will have “little effect” on consumers, say retail industry analysts.
Federal Treasurer Joe Hockey will meet state treasurers on Wednesday to consider a report into the tax on online shopping, but any move to apply tax on purchase made offshore will make “little difference”.
IBIS World senior researcher Lauren Magner said imposing the GST would have little effect as the main reasons consumers shopped online were greater choice and better pricing.
“If we do eliminate the $1000 threshold it won’t make much of a difference. The main reason Australian retailers will take back market share from international retailers is because they’re migrating online and offering more products and becoming more competitive in their pricing,” Ms Magner said.
Ms Magner’s findings were backed by research from Mastercard and consumer watchdog CHOICE.
CHOICE head of media Tom Godfrey said a recent survey found just 12 per cent of online shoppers nominated saving on taxes as a reason for internet shopping.
“I think retailers are kidding themselves if they think this tax will boost (local) sales,” Mr Godfrey said.
“We have shown time and again when we shadow shop large department stores, is that in price, customer service and value for money, these guys are miles behind.”
The CHOICE survey also found that while saving money was an issue, convenience was a larger factor.
‘It’s not about tax’
Following a Productivity Commission recommendation and pressure from the retail sector, the previous Labor government had considered changing the restrictions as part of its tax reform agenda. There were concerns, however, that implementing the tax would cost more than it made in revenue.
Australian Retailers Association executive director Russell Zimmerman said removing the threshold would put Australia in line with international standards.
“The threshold at $1000 is one of the highest, if not the highest in the world,” Mr Zimmerman said.
He said New Zealand was at about $400, while Canada had a threshold of just $30 and it was similar in the UK. Mr Zimmerman disputed claims that the tax would cost more to collect than it would create in revenue.
“There are different methods. One is getting every retailer who sends goods from overseas simply to register for the GST.”
When it came to price, another factor was the magnitude of the saving available offshore. Most shoppers saved more than 10 per cent on a purchase, with 43 per cent of respondents saving more than 25 per cent by shopping online.
A NAB online retail index report stated that in the year to September 2013, Australia’s online retail spending totalled $14.3 billion, with about 60 million parcels coming into Australia each year, containing goods priced under the threshold.
The NAB report said the amount was equivalent to 6.3 per cent of the traditional bricks and mortar retail sector (excluding cafés, restaurants and takeaway food to create a like-for-like comparison) in the 12 months to August 2013.
Claim: Workers will suffer
However, the retail industry claims if the threshold is not lowered, tens of thousands of jobs will be lost in coming years.
An Ernst and Young report commissioned by the National Retailers Association said that by 2015 about 118,700 traditional retail jobs would be lost to the online sector.
“Of the 118,000 jobs lost, up to 33,400 of the job losses can be directly related to retail sales going to overseas online providers as a result of the continued operation of the LVT as people shift more of their spending towards overseas retailers and away from domestic (online and traditional) retailers.
“This loss is, therefore, avoidable if the LVT is abolished.”
‘Close the loophole’
Myer chairman Paul McClintock told the company AGM this month the GST exemption issue was an issue of compliance and should be on the agenda of the new government.
“The loophole for overseas retailers reflects thinking from a time before the advent and growth of online retail which is now measured in the billions of dollars.
“The states’ major tax should not continue to be allowed to leak from where it is intended to be directed – towards new roads, infrastructure, schools, and hospitals.”
Choice’s Tom Godfrey said they supported a levelling of the playing field if it was done economically.
“CHOICE supports a level playing field for Australian retailers, and believes the threshold should be lowered if it can be done cost-effectively and efficiently, without burdening consumers with massive fees, delays, and red tape.”
He said retailers should spend more time focussing on customer service, rather than taxes. Likewise, IBIS World’s Ms Magner said retailers should concentrate on building competitive outlets and online sites.