The low-value threshold argument is like a bad stink. It just won’t go away.
Years after the retail industry started debating whether the $1000 threshold for imports should be reduced, the argument still rages. Dropping the threshold, the argument goes, will save jobs.
Never mind the biggest proponents of the scheme – retailers like Harvey Norman and Myer – have backed off. Earlier this month, New South Wales treasurer Mike Baird said the federal government needs to revisit the issue.
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Premier Investments chair and retail veteran Solomon Lew has made similar claims this month as well.
The argument in favour of lowering the threshold is simple. Proponents say lowering the threshold to something like $20, or eliminating it completely, will place online retailers on a “level playing field”, and make them subject to the same taxes bricks-and-mortar companies pay.
But make no mistake: this is just a smokescreen. It is a side-issue, which bricks-and-mortar retailers use to distract themselves from the fact they have simply stopped innovating.
Is it any wonder companies like Myer and David Jones have abandoned the public call for lowering the threshold, as they’ve spent millions of dollars upgrading their online strategies? It really couldn’t be any more obvious. These businesses will earn more in the long term if they focus on their digital strategies rather than an over-complicated fix.
And it is over-complicated. In order for the government to make any money on the deal, it needs to reform the customs system. These reforms are expensive and in some instances make the entire operation of lowering the threshold revenue-neutral.
In fact, the whole debate over the low-value threshold has been drenched in problems. Let’s recap:
Way back in December 2011, the Productivity Commission shot down the concept of gathering revenue for a low-value threshold of just $20.
“Lowering the threshold to $20 would raise in excess of $550 million in tax revenues, but the cost of the processing using the current system would escalate to over $2 billion — more than three times the additional revenue collected,” it said at the time.
Yes, the report did suggest dropping the threshold for tax neutrality purposes. But retail advocates also forget to mention the report said this whole debate was a “minor part of the competition story”.
A report released by the National Retailers Association last year argued 118,000 jobs were at risk if the government didn’t eliminate the low-value threshold.
However, as SmartCompany has previously pointed out, the report is flawed. It was made on the assumption that if the low-value threshold were eliminated, prices would rise by 14%.
It then assumed two scenarios: one in which demand for imports would be reduced by 70%, and one in which there would be only a 42% reduction.
Because of these two assumptions, the NRA said 118,000 jobs were on the line. But to suggest people would stop buying goods from overseas based on a 14% price increase is a problematic argument. Price differences are much larger than 14%, and as experts have pointed out, price is only one comparison point out of many for online shoppers.
Also, last year the government’s report recommended a number of changes in regards to the customs system which could help gather revenue. But the issue remains – there’s still a lot of work to be done before this issue becomes viable.
Meanwhile, the government doesn’t seem to know which side it’s on.
All the while, more companies are improving their online capabilities. The price gap between Australian and international companies still exists. Shipping times have become shorter.
The low-value threshold is yesterday’s argument. Sure, changing it to $20 will introduce tax neutrality, and that’s a good thing.
But lowering the threshold isn’t going to make any difference when it comes to local sales. If businesses are fixated on the idea that if the threshold is lowered, sales will improve – then they need a new strategy.