How the Productivity Commission would help fix the retail sector

Changes to wages, industrial relations rules, trading hours and zoning laws are just some of the recommendations contained in the Productivity Commission report on the retail industry, but just how likely are any of these proposals to succeed?

While the report itself has put forward a number of changes to be made in order to make the retail industry more competitive, many will take several years to accomplish and could be quite costly, despite ongoing pressure from the industry itself.

With the Government already dismissing the idea of reducing the GST-free import threshold, it doesn’t seem likely that any of these other changes will see the light of day as well.

Here’s a break down on the biggest policy recommendations, and how likely they are to receive reform:

Wages

This is perhaps one of the biggest issues retailers have cited in their argument that the industry is becoming unable to compete. Australian wage agreements are some of the highest in the developed world and with extra penalty rates, many retailers are under pressure.

In their submissions to the Productivity Commission some retailers – including Myer –argued that they should be able to transition to a type of commission system, where staff are paid less and receive incentives based on performance.

“Retail employers are among those most affected by minimum wage decisions because of the comparatively higher level of employment in the retail industry subject to minimum award wages,” the report found.

It also said Fair Work Australia needs to take into account regulatory and workplace inefficiencies when setting minimum wage decisions.

However, this issue has nearly zero chances of being addressed by the Government. Last night on the 7.30 Report Bill Shorten criticised the plan, and said “the idea that the future of the industry relies on cutting wages back doesn’t fly”.

While Shorten has promised that the Government will look into some labour issues, and that Fair Work Australia will begin investigating whether some of its rules are a burden on retailers in particular, it won’t be any time soon that retail wages are cut.

Trading hours

Trading hours are one of the most hated regulations by small business. With all the states operating under their own schedules, many businesses complain they aren’t able to open during certain periods that could bring them extra revenue.

This was highlighted in many submissions to the Productivity Commission, with retailers saying they should be allowed to open when they would like. Particularly in Western Australia, where many businesses are divided up into several zones and trading hours regulated accordingly.

The PC report says the are “good reasons” why trading hours should be completely deregulated, including increased customer welfare benefits, reduced discrimination and a “less artificially distorted retail sector”.

It argues that because consumers are now able to access online suppliers at any time during the day, retailers should have the ability to open at any time, and “have the ability to respond to changing consumer tastes and preferences”.

Certainly the opposition has expressed its support, with opposition treasury spokesman Joe Hockey saying, “if they want to open at three o’clock in the morning and they think they can make a buck, then that’s fine”.

But while there may support for harmonising retail trading laws, such a change won’t come any time soon. States with harsher retail trading zones, particularly Western Australia and Queensland, won’t want to change immediately, and it may take several years before these laws are harmonised.

Zoning

Much has been written over the past few years about retail zoning laws and how harsh restrictions are making competition even harder. That view has been echoed by the PC, which says that policy makers must ensure that areas where retailers located are both physically large, and broad in terms of usage.

Essentially, different types of businesses should be allowed to open near each other in order to compete.

It also says that current restrictions on zoning may be artificially increasing prices for residential and commercial property, and as a result, the Government should broaden and simplify zoning “to facilitate new retail formats”.

This particular finding was welcomed by property groups yesterday, particularly Urban Taskforce Australia, which earlier this year released its own report into how zoning laws are restricting retailers from competing.

They also found that current zoning laws do not allow similar types of businesses to operate near each other, stifling competition.

Restructuring zoning laws has a better chance of occurring than either wage cuts or the harmonisation of trading laws, but it is a complicated issue. Local councils are unlikely to change their planning unless other councils do the same.

To change zoning laws would require a nationwide replanning project that is unlikely to occur in the short to medium-term.

Customs

The likelihood of the Government reducing the GST-free threshold has already been addressed, but the Productivity Commission lays the blame for this squarely on the feet of the Customs Department.

In the report it argues that because Customs is now not equipped to assess the value for all mail articles, and instead employs a risk based approach where the department arranges to be present only for a number of mail articles that are determined most likely to contain risks.

“Identifying articles for revenue liability is an intensive physical process that requires manual checking of each article.”

“If the value of the parcel is over $1,000, Customs refers the item to Australia Post which inputs details into its own system and sends the addressee a First Notice advising them of the need to complete a Full Import Declaration (FID).”

The report states that Customs’ current infrastructure and systems “would neither be adequate nor efficient in meeting a dramatic increase in volumes”.

“Substantial delays in incoming parcel processing would be inevitable, affecting not only consumers shopping online, but the vast range of businesses involved in importation of goods”.

The Government is more likely to address this issue than any other. With the Fair Imports Alliance already putting pressure on the Government to reform the Customs department, introducing changes to the way parcels are processed could be one of the first changes made to the industry.

Australia Post

Similar to the Customs proposal, the Productivity Commission has argued that the way Australia Post handles goods is inefficient and should be streamlined “regardless of what changes may be made to the threshold”.

It says that identifying articles for revenue liability is “an intensive physical process” which requires manually checking each article. If Customs detects an article is worth above $1,000, it is refereed to Australia Post which inputs details into its own system.

“While this process is underway, Australia Post retains possession of the parcel. Secure storage of these parcels is occupying increasing space in international mail gateways.”

Changes to Customs and postage procedures are some of the strongest recommendations in the report. With pressure on the government from lobby groups, this seems to be one of the very first areas were likely reforms could be targeted.

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