Lowering the GST threshold will protect local Australian retailers, save jobs and provide the Government with $1.6 billion, according to the many media articles published this week.

The issue of GST has received an almost daily mention across the mainstream press lately, as retailers continue to campaign for a change to the current GST regulations, which currently allow online shoppers to purchase products tax-free from foreign competitors.

It’s also interesting to note that in direct oppostion to this is a very obvious consumer voice, which directly challenges the retail opinon, citing a lack of GST is not the primary reason behind purchases from online foreign competitors.

So who is making the most sense? And is the GST threshold actually affecting the success of local retailers by encouraging consumers to buy elsewhere?

The retailers – lower the tax-free threshold  

Currently the tax-free threshold in Australia is $1000, which means that foreign online purchases that fall below this amount are not subject to GST. This is great for consumers who like to regularly shop online, but this high threshold has caused huge discontent among local retailers who believe it puts them on an unfair playing field.

Key retailers including Myer, David Jones and Harvey Norman have been advocating for change in this arena since 2010, lobbying the government to either lower the tax-free threshold or charge GST on all online purchases. Some retailers have even suggested the threshold be reduced to as little as $30 to allow them to properly compete with foreign retail giants. 

CommSec’s economist Savanth Sebastian is a supporter of this idea saying that if the tax threshold was lowered it would significantly benefit the Australian economy:

It makes the environment more competitive and fair across local retailers as well as online retailers and that’s a good outcome.

Yes it means more money into the Government coffers, but that money can certainly be used in other parts of the economy. 

Margy Osmond, Australian National Retailers Association chief, also agrees with this sentiment and cites the success of Britain’s £15 threshold as a reason why the Australian government should lower theirs:

If the threshold in Australia was lowered to a similar level, government could earn an extra $1.6 billion and retailers would be able to operate on a level playing field. 

However, not all local retailers are pro-GST change, with Woolworths supermarket boss Tjeerd Jegen saying that customers shouldn’t be taxed for seeking out cheaper prices:

I think retailers should not ask for increases in taxes for customers. I think we should provide better prices so there’s no need for you to go online and buy stuff in America. 

The consumers – lowering the threshold won’t change our shopping habits

Australian consumers have been hitting back at suggestions that it is time for a GST reform,  highlighting that most people aren’t going online to escape paying GST – they are motivated by other elements, such as convenience and overall price. 

In a comment on a recent Age article about the tax-free threshold, one man pointed out that price was absolutely the deciding factor for him.

I’ll be happy to pay 10% GST on items that cost 50%-100% extra locally. I just bought a DJ console from the USA for only $700. Here it retails for $1300. An extra $70 GST would have made no difference to my decision. It’s a different world now retailers. We know how much things cost overseas, so you can’t fool us anymore. 

Additionally, it has to be considered whether or not it is fair to charge tax on something that might never actually be offered in Australia for sale. Not all brands or electronic goods are available for purchase from Australian retailers, which is why some consumers turn to the internet. Because of this it seems slightly unfair to slap those items with taxes in an effort to protect local retailers who don’t even sell the item. 

So where does that leave everyone?

It would seem that current strength of the Australian dollar, popularity of overseas travel (which can introduce consumers to new products and stores) and the often huge discrepancy in prices between countries are considered to be contributing factors to the existing state found amongst many Australian retailers. Arguably, it can’t be traced to the single issue of having a tax-free threshold. 

In fact, as Econsultancy reported earlier last month, online domestic retail has actually grown 40% since last year, more than double that of international retail, which saw only a 17% increase in online sales growth.

The idea of lowering the tax-free threshold is not without merit but even if the government was to do so, a 2011 Productivity Commission report found that if the tax-free threshold was to be lowered from $1000 to $100, it would cost the government around $500 million to implement. This is because the cost of monitoring almost every parcel that comes in to the country is ridiculously huge and therefore possibly unachievable. 

So what’s should local businesses do? Billabong’s chief Launa Inman has an idea, suggesting retailers stop trying to change the existing law and instead use this as an opportunity to innovate their  business, products and services: 

We have to learn to adapt. It is a global world now and our challenge is just to get out of there and actually make it happen. 

I don’t think that’s just the issue of the GST, I think it’s much more than that – it’s rents, it’s labour, and all sorts of things. 

It’s about how effective we can be at going out there and finding product offshore at better prices than we do today, and understanding the nuances of where we can save on duty and just be much smarter when it comes to sourcing a product.