Monday, May 23, 2011

Treasury to retailers: You'll force up rates

The Treasury has rubbished calls from high profile retailers for a tax on on-line imports saying it would shield them from competition and help force up interest rates.

Confidential briefing notes released under the Freedom of Information Act show Treasury is concerned mainstream retailers are not fully passing on savings they have made from the higher dollar.

“The fact that a high exchange rate shifts spending from domestic to foreign sources and increases competitive pressures on businesses that face foreign competition is an integral part of its role,” says an executive minute to Treasurer Wayne Swan dated November 2.

“If measures are taken to protect domestic businesses from these effects, the exchange rate will be less effective in dampening inflation. This may mean that monetary policy needs to do more than otherwise, which would further appreciate the currency, and force more of the burden of adjustment onto other sectors.”

“While retailers argue that they only seek equal GST treatment for imports, it is not possible to collect GST on all imports without imposing significant costs on importers,” the minute says.

At the moment overseas orders of less than $1000 are exempt from the 10 per cent goods and services tax... and also an import duty of up to 5 per cent where it applies.

Retailers including Harvey Norman and Myer and the retail workers union want the exemption scrapped to protect them from what they say is unfair competition.

But Treasury has told Mr Swan the exemption may be “inconsequential” and has commissioned its own survey to make the point.

It finds that while a Toshiba laptop sells in retail stores for $1340 retail it can be bought online through an Australian website that pays GST for $967.

A Panasonic digital camera that sells for up to $487 at Myer can be bought online from a GST-free website for $287, a price that would remain much cheaper even if GST was charged.

“The absence of GST and customs duty is unlikely to be the main reason for strong price competition,” an October 2010 minute says.

“Since the beginning of 2010 the $A has appreciated 11 per cent against the $US, 13 per cent against the Euro and 11 per cent against the pound. If local retailers have not passed on their own exchange rate savings in their local retail prices of imported goods, price differentials will be exacerbated.”

Lowering the $1000 tax-free threshold would require every good above the new threshold to be “stopped, assessed and have tax collected before forwarding to the addressee”.

If the current arrangements applied they would also be subject to a $42 to $65 import processing fee and possible customers brokerage of at least $100.

The Productivity Commission has begun an inquiry into retail competition and reported earlier this year that even a large reduction in the GST-free threshold might not make a "significant impact" on the competition facing big retailers.

Preliminary data from Customs showed the average value of parcels claiming the GST exemption was "less than $100" - well below the the $1000 threshold the retailers want to cut.


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djm said...

Lowering the $1000 tax-free threshold would require every good above the new threshold to be “stopped, assessed and have tax collected before forwarding to the addressee”.

I'm sure the Gerry Harveys understand this perfectly - in fact, it is probably their goal to add friction in the form of delay and paperwork.

V said...

Surely this would be the time to initiate discussion of a transactions tax that applies to all transactions and would be assessed at the bank level. This would level the playing field between industries in that purchases via any Australian bank institution would be subject to the tax. In a global marketplace the GST is past it's useby date. It was originally a good idea because of it's broadness, but if some sectors are able to avoid it, it loses this feature.

Anonymous said...

We do not need the bank to tell us prices for TV etc are higher than they should be.

We only need to visit the stores and ask ourselves why they are still the same price or higher than 12 months ago.

The Lorax said...

Sorry, but this is an unfair tax.

There might be many reasons not to impose it on overseas websites -- too costly to collect, inflationary, upward pressure on interest rates etc -- but don't tell me its fair.

Now I have no love of Gerry Harvey and other Aussie retailers. I don't think they add much to Australia. No doubt there's still plenty of fat in his margins, and no doubt he's been ripping us off for years, but don't tell me its fair that Gerry Harvey should pay 10% of every sale under $1000 to the ATO but online retailers should not.

Gerry Hervey is entitled to have a whinge.

Marek said...

I agree with you Lorax, just a small correction though, local online retailers have to pay GST reguardless of price, its the OS ones that don't

The Lorax said...

I know Marek. Its an anti tariff.

The best argument I've heard is its better to let Aussie retailers absorb some pain because it means less pain for exporters and import-competing industries.

But then, according to mining boom cheerleaders, there is no pain in retail, there is no pain for exporters, everybody has a job, everybody is fabulously wealthy and what we need is five interest rate rises by Christmas!

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