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There are better options than expanding the GST net to online sales

The Federal Government is tipped to be eyeing the online world in a bid to shore up­ collapsing federal tax revenues. This move has more to do with squeezing “little areas” to get more tax, and ensure…

While the Federal Government may argue changing the GST threshold on online purchases is an equity measure, it’s likely to be viewed by many as an exercise in shoring up the federal budget. Online shopping picture sourced from www.shutterstock.com

The Federal Government is tipped to be eyeing the online world in a bid to shore up­ collapsing federal tax revenues. This move has more to do with squeezing “little areas” to get more tax, and ensure a surplus - and less to do with redressing unfairness vis-a-vis brick and mortar retailers.

Australian brick and mortar retailers would love to see a tax on “large” overseas internet sales through a lowering of the $1,000 tax-free threshold. However, given the difficulties of collection, it is not clear that it will help raise much revenue in the short term.

While the government could argue that lowering the threshold is an equity measure, it would be viewed by many as an exercise in shoring up the federal budget. Indeed, every revenue measure over the next 10 months will be viewed with such suspicion, even if a sound tax policy rationale underlies the measure.

Last week retailers conceded tax exemptions on internet shopping were unlikely to be scrapped, and some now argue it was wrong for them to push so hard for GST to be levied on “low value” online purchases. Their push may have alienated their customers, and their advertising campaign made them look largely out of touch. Consumers like being able to shop around for cheaper prices. However the new move as part of the GST review has raised brick and mortar retailers’ hopes again of imposing GST on what are called “low-value imports”.

It is going too far to say under all scenarios, it would cost more to collect the tax than it would raise. It will depend on where the new low value threshold is set. For guidance on that, we could look at other countries: the low value import thresholds are (in $A): New Zealand: $300; Canada: $20; UK: $30; Singapore $300. The Australian position of $1,000 is way above those. The question is why.

Prior to November 2005, the Australian threshold was only $250. The tax saving and therefore revenue lost to government on a $1,000 purchase is roughly $100. Simply reverting to the old standard of $250 would, at least in theory, bring in a lot of tax revenue.

However, there is little point in having a tax rule for purchases over the internet if there is no practical way of collecting it. In terms of a taxing point or tax collection point, this is difficult. Australia could make every online retailer in the world register for Australian GST if they export Down Under. While technically feasible in today’s world of tax cooperation, this is unlikely in the short-term.

More likely in the short-term, the obligation to collect the tax would be imposed on the recipient of the overseas parcel. This would be complicated and is certainly not a model used under the income tax system.

The GST threshold of $1,000 is high by world standards, and lowering it to say $250-$400 is likely to raise more tax. The question is whether there is an appetite for this among politicians. You would create a load of hassle for every voter that has begun to shop online in a big way, and the government would not be guaranteed a healthy revenue collection.

If the surplus is the goal, there are many better targets for the federal government. For example the treatment of discretionary trusts, continuation of uncapped negative gearing, continuation of uncapped exemption on the family home and continuation of the uncapped exemption for superannuation payouts are crying out for an overhaul that would raise significant revenue. Importantly, reform of these areas would have a sound policy reason to them.

Regrettably, these are in the “too hard” basket at the moment.

Instead, what we are seeing is the government trying hard to “reform” areas where the return to revenue is minor. While this may improve the tax system marginally, politicians should really be looking at the bigger items that are a major source of unfairness and inefficiency in our tax system. This is what the Henry Review was all about.

Alas, with the current government majority, politicians of all persuasions seem to be sitting on the fence about tackling areas that are screaming out for reform, - which is why GST on low value internet imports is once again under consideration.

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16 Comments sorted by

  1. Lincoln Fung

    Economist

    There are a couple of points.
    1. An increase in GST revenue does not benefit the federal government because all GST revenue goes to the states as specified in the intergovernmental agreement on finanical reforms before the GST was indtroduced.
    2. The comparison of the thresholds between countries does not, itself, say much about the costs of collecting the tax at lower values.
    One more point is that governments and people should not think automatically to increase tax if government budgets are having problems. Instead, governments should consider reducing expenditures. Otherwise, governments will get bigger and bigger. Why is that a good thing?

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  2. John Kelmar

    Small Business Consultant

    Here we go again. The Government finds that its revenue is falling because people have lost their jobs and/or prices in the private sector have fallen, but the Government keeps on spending at the same rate as before.

    The Government should learn a little about how to run a successful business, afterall the business of Government is akin to proper Small Business Management - Rule 1: Don't spend more than you earn, Rule 2: If your income is reducing then your spending should do likewise.

    What…

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    1. Gary Murphy

      Independent Thinker

      In reply to John Kelmar

      "Rule 1: Don't spend more than you earn, Rule 2: If your income is reducing then your spending should do likewise."

      It's called fiscal policy. When the economy is weak (as it was after the GFC) the government runs a deficit to keep the economy growing (and jobs created). In the years after the GFC the government deficit was 3% of GDP and economic growth was 3% of GDP. Without the government deficit we would have been in recession.

      Government is nothing like Small Business Management. The purpose of government is much broader than simply balancing the books every year.

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  3. Michael Wilbur-Ham (MWH)

    Writer (ex telecommunications engineer)

    Two comments both talking about the government getting bigger and bigger, yet the facts is that under Labor's last budget taxation, as a percentage of GDP, will be the lowest it has been in 20 years.

    To conservatives Labor is 'big spending' no matter what they do.

    But to this progressive, that Labor reduces taxation even though we are already a low tax country compared to the OECD average, tells me that Labor are a party of the RIGHT.

    Taxing internet imports is just a ploy by the rip-off…

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  4. Kevin Cox
    Kevin Cox is a Friend of The Conversation.

    logged in via LinkedIn

    Collecting the GST on internet sales of less than $1000 at most should cost 20 cents per payment. Even assuming 50 cents that means it is still worthwhile to collect tax on anything above $5.

    Here is how. Let payment systems collect the money from the same source as the payments are being made. You wish to pay by PayPal then PayPal charges the GST separately to your PayPal account and transmits the funds to the government. You pay by credit card then the Credit Card Gateway collects the funds…

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  5. Wayne Gibbens

    logged in via email @gmail.com

    Look at the history of the GST, it has been touted by both sides of politics, most notably by John Hewson, then Keating, both wanted an across the board GST and a complete taxation reform, then Howard made a compromise with the Greens (the compromise was the problem, and any deal with the Greens seems to go toxic and be counter productive), and we go the GST we have today, flawed, and in the long term not capable of providing the revenue needed to fund the growing public expectation of the provision…

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    1. Michael Wilbur-Ham (MWH)

      Writer (ex telecommunications engineer)

      In reply to Wayne Gibbens

      Interesting that to Wayne the Greens are now responsible for the Democrats deal with Howard.

      And a minor problem with your flat rate tax proposal, which you say would need bipartisan support, is that most people think a progressive tax system is fairer.

      And suggesting that Abbott would tax religious entities! As if.

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    2. Julia Abbott

      logged in via email @gmail.com

      In reply to Wayne Gibbens

      Wayne, a taxation system also needs to be fair. Sometimes you have to sacrifice a bit of efficiency to achieve that. The Greens did a good job, in my opinion.

      We want people to have access to good health care - taxing health services would jeopardise that. Likewise, we need our population to be well educated to compete in the world. And extending the GST to fresh food (we already have it on processed, takeaway and restaurant food) will not help the obesity crisis. (Nicely ironic when the GST goes towards the States health care costs).

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  6. Paul Meleng

    Management Consultant

    collecting tax on stuff sent through the mail is yet another example of how stupid all income or gst tax becomes. Just raise a rent revenue on all land and resources and the use of common wealth monopolies . Fund the running of a country on the basis of the use of a country.

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  7. Mike Jubow

    forestry nurseryman

    Thanks to the obfuscation by the likes of Gerry Harvey et al, this discussion has been sent off in the wrong direction right from the beginning. I'll illustrate as briefly as I can with two experiences of my own. I really couldn't care less if I was charged GST or not on my overseas purchases.

    Recently I went to our local chainsaw dealer and was Quoted $2350 for the power head only for a Husqvana chainsaw. I checked around Australia asking various dealers for quotes, most of which were around…

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  8. Firozali A.Mulla

    PhD

    11/14/12 On the European front, a closely watched indicator of German economic sentiment unexpectedly dropped in November. The ZEW Indicator of Economic Sentiment fell 4.2 points to -15.7. Economists expected a reading of -10. There have been worries brewing that the Eurozone’s debt crisis, coupled with other global headwinds, are beginning to take a toll on Europe's biggest economy that has so far been fairly resilient. Eurozone finance ministers also gave Greece an extra two years to meet goals on slashing its budget deficit. However, disagreements between the European Union and International Monetary Fund have caused uncertainty over when the country will receive much-needed rescue aid. Without the aid, Greece is at risk of defaulting on its debt, the spectre of which has roiled financial markets in the past. I thank you Firozali A.Mulla DBA

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  9. Firozali A.Mulla

    PhD

    15/11/2012We still await the EURO to come back and that is sad as the middle of Europe break s the centre will have the problem then if not now Official figures due Thursday are expected to show the 17-country Eurozone is in recession, though only just. The Eurozone has dodged recession during its three-year debt crisis, mainly thanks to the strength of its largest single economy, Germany. But even Germany is struggling now as confidence drains in the face of the turmoil afflicting large parts of the Eurozone, mainly the southern economies of Greece, Spain, Italy and Portugal. Five Eurozone countries are already in recession, officially defined as two straight quarters of economic contraction. Thursday's figures may see more joining them. Analysts expect the Eurozone economy contracted by a quarterly rate of 0.1 per cent in the third quarter. Following a 0.2 per cent decline in the second quarter that would put the Eurozone in recession. I thank you Firozali A.Mulla DBA

    report
  10. Firozali A.Mulla

    PhD

    Greece's economic slump deepened in the third quarter, with output shrinking 7.2 percent on an annual basis as the debt-laden country heads into its sixth year of depression and struggles to meet its bailout targets. The contraction was deeper than the second quarter's 6.3 percent drop and follows the passage of a tough 2013 budget by Prime Minister Antonis Samaras's government that is expected to continue to smother growth for most of next year. The debt crisis dragged the euro zone into its second…

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  11. Firozali A.Mulla

    PhD

    16/11/2012The debt crisis dragged the Eurozone into its second recession since 2009 in the third quarter despite modest growth in Germany and France, data showed on Thursday. The two leading economies both managed 0.2% growth in the July-to-September period. But the resilience could not save the austerity-hit 17-nation bloc from overall contraction as the likes of The Netherlands, Spain, Italy and Austria shrank. Economic output in the Eurozone fell 0.1% in the quarter, following a 0.2% drop in the second quarter. Most economists expect Germany to contract in the fourth quarter for the first time since the end of 2011. Where Germany goes, France is likely to follow and economists expect its economy to shrink in the October-to-December period. For all of 2012, the European Commission sees the Eurozone contracting 0.4%, while growing just 0.1% in 2013. This may look like as and gloomy future for many I thank you Firozali A.Mulla DBA

    report
  12. Firozali A.Mulla

    PhD

    Let us face it. The euro zone economy is on course for its weakest quarter since the dark days of early 2009, according to business surveys that showed companies toiling against shrinking order books in November. Service sector firms like banks and hotels that comprise the bulk of the economy fared particularly badly this month, and laid off staff at a faster pace. While the monthly rate of decline that manufacturers reported eased far more than economists anticipated,Markit's latest Purchasing Managers' Indexes (PMIs) pointed to little change overall for a recession-hit euro zone this month. The flash service sector PMI fell to 45.7 this month, its worst reading since July 2009, the survey showed on Thursday, failing to meet the expectations of economists who thought it would hold at October's 46.0. I thank you FirozaliA.Mulla DBA

    report
  13. Firozali A.Mulla

    PhD

    11/24/12 European banks have asked the European to postpone the introduction of tougher global bank capital rules by a year to 2014 after US regulators told lenders they did not expect the new regulations to take effect in 2013. The tougher rules, known as Basel III, are the world's regulatory response to the 2007-09 financial crisis and would force banks to triple the amount of basic capital they hold in a bid to avoid future taxpayer bailouts. The European Banking Federation sent a letter on Nov…

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