Don’t say I didn’t warn you. From Terry McCrann today:
I’VE changed my mind. The retailers are right. The government should – must – extend the GST to online purchases. And without a minimum threshold.
At its simplest, it’s a matter of the most basic fairness.
Consider this example. Two coffee shops 100 metres apart – one has to pay the GST, on every cup of coffee sold, the other does not because for some reason it’s ‘too difficult’ to collect the GST on each of the $4 cups of coffee it sells.
That would be outrageous and totally unacceptable. The tax should apply equally to all the players in the market, otherwise it would give the second shop an unfair, unjustifiable and ultimately unbeatable advantage.
…But not even that happens with offshore-sourced online purchases. The extra profit flows to a foreign company at the expense of the Aussie competitor; the extra tax flows to a foreign government, at the expense of both the federal and state governments.
By leaving offshore online purchases tax free, we are actually delivering a triple-hit to ourselves. We are sending the profit to a foreign company, the job to a foreign worker, and the tax revenue to a foreign government.
McCrann’s argument has already been debunked by the Productivity Commission, from John Freebairn:
As a general principle, the GST is levied on imports to provide for neutral tax treatment of domestic-produced and import-sourced products. But because of high operating costs, imported parcels valued at $1000 or less are exempt from the GST, and also customs duty except for tobacco and alcohol.
Over time the share of household purchases via internet purchases from overseas has risen and this upward trend is expected to continue. The Treasury estimated a loss of gross of more than $600 million in GST revenue on imports valued at less than $1000 a parcel for 2011-12.
Some states see the forgone gross GST revenue on low-value imported parcels as an easy source of additional funds for their ever-growing health, education and infrastructure expenses.
And they have been joined by retailers complaining of a loss of international competitiveness, who are also arguing that similar taxation of all imported goods would boost local employment.
In principle, the argument for neutral taxation of all consumption goods – whether produced domestically, imported in packages valued at more than $1000, or imported in less than $1000 packages – is impeccable.
However, the in-principle argument for lowering the threshold assumes zero costs to collect the GST, both for the government authorities and for business suppliers. The reality is extending the current procedures would be expensive.
The Productivity Commission in a 2011 study, “Economic Structure and Performance of the Australian Retail Industry”, estimated additional costs more than double the gross extra GST and customs revenue if all imported parcels were to be taxed.
Lowering the current $1000 threshold to $500 would at best break even. Since the Commonwealth returns only net proceeds of the GST, that is gross tax less its administration costs, the net gains for the states are likely to be minor, at most a few $100 million a year.
In short, at $1000 the costs of policing the threshold are lower than the tax raised. At $500 it’s break even. Lower than that and it’s a net cost to taxpayers and you are subsidising retail. Even if it makes sense on the grounds of competitive neutrality, which is what McCrann’s analogy is about, why would you bother? The first test for any potential policy change is do the benefits outweigh the costs? This one fails.
