Gerry Harvey is not Australia’s most popular man right now. It would have taken a hell of a campaign to convince Australians that imposing GST on internet retail purchases under $1000 was not just good policy, but the only fair thing to do.
It’s hard to feel bad for the retailers’ coalition, which includes Myer, David Jones and Target as well as Harvey Norman, because it seems like they’re trying to divert attention from higher prices in their shops, which have nothing to do with the GST at all. Hence the popular backlash.
But despite their tone deafness, the retailers have identified an issue that will be huge in the future. For better or worse, the government will eventually be forced to close the GST-free loophole. The alternative is to admit an efficient consumption tax is impossible in a world of global commerce.
Sure, in 2010, only a tiny percentage of retail sales were online. But there is no reason to believe Australians’ engagement with online retail and services has peaked. After all, it took some time to get where we are today: people had to get comfortable with buying goods, sight-unseen, from a website or auction seller.
There’s a generation gap too: 82 per cent of Australians aged 25 to 34 reported purchasing goods online, compared to 38 per cent of those above 65.
And the cost of international shipping is becoming trivial.
The UK-based site, Book Depository, is somehow able to beat almost all Australian retailers on price and ship its products across the world for free. It’s a volume game: the more they ship, the cheaper the shipping for each individual item becomes. The courier discounts the site has negotiated mean many Australian books are cheaper to ship from the UK than to buy at a bricks-and-mortar store here.
Sites like Book Depository use air freight. The savings are even more substantial when you ship.
The rise of the shipping container since the 1960s has reshaped and propelled globalisation more than any other innovation. Where earlier goods would be stowed haphazardly on pallets in small cargo ships, they are now shoved into metal boxes of uniform size, which has changed international commerce to the extent that transport costs are becoming irrelevant.
That’s two disruptive changes working in concert. Driving one side of retail, the revolution of the internet has been proclaimed far and wide. But the revolution on the other side, in international transport, is just as significant yet largely unnoticed.
The waves of change in retail and industry are immense and, of course, welcome. Right now, Gerry Harvey may seem like a rent-seeking whinger. But it is a virtual certainty his campaign is just the first skirmish in a long war between government and consumers who are comfortable circumventing domestic taxes.
As long as the loophole remains, we can expect retailers to try to blur the distinction between overseas and domestic retail. As a pre-Christmas gambit, Myer announced it was considering building a Myer-branded website in Shenzhen, China, to exploit the GST-free loophole.
A transparently political announcement, but not a stupid idea. If there’s a competitive advantage to be gained from restructuring a business to avoid paying local tax, someone (not necessarily Myer, but someone) will try.
The retailers haven’t quite made their case. At the moment, the logistical hurdles to imposing the GST at the border are insurmountable. And there’s obviously no way to get every online retailer around the world to comply with Australian tax law.
Julia Gillard said last week that levying GST on international purchases under $1000 may cost more than it would raise. (Customs ain’t free.) That’s as good a reason as any to rebuff the retailers. Yet it’s at best a temporary reprieve. As online commerce inevitably grows, the arithmetic will change. No government will tolerate watching its revenue hollowed out by changing consumer preferences.
The reaction to the retailers’ campaign has been intense, a reminder Australians don’t like paying tax very much. Less tax is better than more tax; better again is no tax at all.
Yet whether now or in 20 years, the government will have to face the fact that globalisation makes it easier and easier for individuals to get cheap deals. This includes seeking the lowest tax liability.
Policy makers and bureaucrats designing tax systems have long struggled with the fact that globalisation makes it hard to impose heavy taxes. We’ve seen this in the mining tax debate, where miners have threatened to take investment money overseas.
So as we now avoid tax by shopping online, perhaps we might rethink our moralising about those miners or, indeed, the wealthy individuals who protect their earnings in tax havens.
With the internet, tax avoidance is no longer just for the rich.
I think that’s a welcome development. Politicians with big spending dreams will disagree. Gerry Harvey mightn’t be popular, but eventually a government will do his bidding.