In the past couple of weeks a campaign being waged by some of Australia's biggest retailers has been calling on the government to change laws regarding the purchase of goods online from overseas websites and retailers. As the law currently stands, purchases under $1000 are exempt from GST and other duties.
The campaign, headed by the likes of Harvey Norman, Myer, David Jones and Borders, said that applying the GST to purchases under $1000 from overseas is crucial to level the playing field and also ensuring jobs are not at risk.
The problem, is that while the idea certainly has merit, the execution of the campaign was met with severe backlash by the Australian population and the key message to consumers was lost. Gerry Harvey was gob-smacked at the vicious and hateful attacks launched at him personally from social media sites such as Twitter and Facebook. Unfortunately, Gerry only made things worse by counter attacking and completely missing the point by where he could have used social media to his advantage by actually asking the consumers for their input. Social media is a two way street Gerry!
So what were the key points of the idea that were actually lost in translation? That's the purpose of this blog post, to outline the ideas and a couple of remedies that work out for everyone.
The first problem the campaign faced was that the argument that adding a 10% GST to online, overseas sales would level the playing field completely missed its mark. I have no problem with the fact that they want to add a 10% GST to an online sale, it's just the product is still going to be far cheaper to buy at the moment due mostly in part to our high Aussie dollar. This is essentially what has caused a flurry of overseas shopping within the past year, not because consumers are trying to dodge taxes. Consumers are just chasing a better deal and who could blame them?
So the key argument that should be being made here is, is why aren't our retailers being awarded the same wholesale pricing on these products that our overseas competitors are receiving? There is obviously a massive disparity in wholesale pricing models for different regions. A famous example of this is Apple's products are significantly more expensive here in Australia compared to the US, even when factoring in local taxes and exchange rates it just doesn't add up.
Secondly, Australia doesn't have one set minimum wage requirement like in the US for instance. Our award wage system is set dependent on your industry and is significantly higher than the minimum wage of other countries. We also have other employee related expenses to consider such as compulsory superannuation, holiday loading and overtime allowances. These costs add a considerable amount to products we buy at retail here in Australia, it also means that it keeps people employed.
The problem is, is that workers keep demanding wages increase on a yearly basis and this has detrimental effects on things like inflation and keeps pushing the price of everything up. It's a never ending cycle that is only going to get worse as we chase the higher dollar. In many respects, we only have ourselves to blame for wanting more and more useless crap and outspending what we earn.
Thirdly, the campaign would have had a far better reaction from the Australian population, if the retailers had outlined the many flow on effects and benefits by collecting the GST on these sales would have had on Australia's revenue. While online, overseas sales account for a very small amount of the overall retail revenue, it is a revenue stream none the less that would benefit the public coffers.
This revenue could go towards improving public infrastructure, health, schools and in the long term, lead to reducing personal income tax. Many people hate the idea of tax but living in a free society means we all contribute to our way of life. If that means paying a little bit to make sure I can drive on a road anywhere in the country or being able to walk into any hospital and receive free health care then so be it.
Now that I've outlined those few key points the only other argument left to debunk is how this revenue would actually be collected. Many people have thrown around the line that if this was left up to customs to administer, the cost to implement would far outweigh any benefit we'd receive.
So this is where I'd take a leaf out of California's tax code as one example. California has a separate state tax that sets it apart from many of the other US states and as such they have mandated that any out of state purchases imported into California are subject to the state tax. The tax is collected on the personal income statements lodged during tax time each year in the US.
This system takes the burden off bureaucrats and makes taxpayers liable for their own purchases. Yes there are potential downsides to this scheme with some people not declaring all of their purchases, but nether the less the great majority do for the most part, play fair. Of course, if you don't declare and happen to be audited, the discrepancies will be found in the long run.
Consumers simply keep their receipts for the financial year and then declare the expenses on their yearly tax refund. The amount is deducted from their tax refund. It's a simple system, with very little overhead. Essentially, consumers would fill out a cut down version of a BAS.
I'm sure there are other creative ideas and ways this could be implemented but simply looking at something from one standpoint and not checking it out from the other side also just adds a level of ignorance to what is at the core, essentially a very good idea, just poorly executed.