Economy

GST lost to the ‘sophisticated digital economy’ isn’t the problem

Engel Schmidl /

There was a lot of publicity this morning for the Australian Bureau of Statistics estimates of the value of goods brought into Australia under the $1000 limit for GST, ordered by online customers. The first time estimate of $6.226 billion for the 2011-12 financial year drove much of the publicity because it is a large figure.

But it’s a red herring, the bigger problem with the GST is the tax-free nature of food and groceries, not imports from offshore. That’s the revenue black hole, by another of magnitude more than 10 times greater than the GST lost to imports under $1000.

Fairfax‘s Adele Ferguson ran with it, quoting the usual suspects like Premier Investments chief Mark McInnes, who reckons Australian government policies are leading to Australian retailers being uncompetitive.

”Urgent action is what’s needed to bring Australia into line with other sophisticated digital economies,” McInnes insisted.

Apart from reflecting yet again the Australian business victimhood mindset, in which governments and the community owe them the responsibility of solving their problems for them, McInnes’s statement was risible given Australia’s retailers have actively fought against Australia becoming a “sophisticated digital economy.” When he was the very hands-on CEO at David Jones, McInnes started down the online route and then abandoned further progress to cut costs.

As Ferguson pointed out, Australian retailers badly lag overseas counterparts in their level of online sales. Compared to the online retail product in the UK and the US, Australia is anything but sophisticated.

And remember the ABS’s figure understates imports because it doesn’t cover eBooks downloaded from offshore (tracking those is impossible), film downloads, music (from iTunes, etc) and online newspapers (New York Times subscriptions for example). That’s a problem that will become worse when 3D printing becomes more widespread for consumers.

The ABS said that 1.8% of May’s domestic retail sales was “derived from online retail sales.” Domestic retail sales were $21.87 billion in May (seasonally adjusted), so online sales within this country were around $220 million.

But even if the GST revenue claimed to be missing as a result of online imports can be reclaimed, that will only be about $620 million on current figures maximum – then you have to offset the cost of monitoring and collecting the revenue, and revenue lost because you have to set the threshold somewhere – unless you want Customs opening every parcel that enters the country, which is presumably what McInnes and co would like.

That $600 million is a pittance compared to the real black hole in the GST, food. According to the retail sales data for 2011-12 from the ABS, around $105 billion was spent on food and groceries.

Adding the GST to food would deliver at least $5-6 billion a year to revenue. Against that, the $620 million missed on online purchases offshore under $1000 is not a lot. That’s especially so as the GST on food would be easier to collect.

But as both parties have ruled this out in the election campaign, the new federal government will have to go on a high cost, idiotic search for new revenue through cost cuts, sackings, or pursuing the self-interested claims of our lazy, uncompetitive retailers.

This article first appeared on Crikey.

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