13/01/2011 - 00:00

Angst and vitriol muddy retail arguments

13/01/2011 - 00:00

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The argument over online retail and GST comes down to one’s interpretation of a ‘level playing field’.

WHY do I find myself so often swimming against the tide of public opinion?

In the recent past I defended Australian banks and their right to make a profit. That was an unpopular stance.

But on the subject of retailing it seems I am even more alone when I suggest that the retail giants of Australia have a good point when they complain about online transactions for offshore goods under $1,000, which currently escape the GST net.

Vocal readers of our online stories, opinion leaders in many publications (including our own), and even those nearest and dearest to me seem to think that Australian retailers have had it too good for too long and should shut up about the leakage of sales to offshore retailers who don’t charge consumers the 10 per cent GST.

I find this astounding. But then again, I am repeatedly astounded by the vitriol that is reserved for any major company in Australia. Banks, miners, petrol companies, supermarkets and now general retailers seem to be hated by consumers. Oh, and don’t forget the main source of internet traffic, Telstra, a company everyone loves to bash.

I find this odd for two reasons. Firstly, if you don’t like them, buy from somewhere else (Telstra’s monopoly position notwithstanding). Secondly, if they are making so much money, buy shares in them.

Of course, in the case of online retailing, people are already doing just that. They are searching for the best price online, often much cheaper than they can get in the stores.

I’d expect these consumers are pretty pleased with themselves to have found a way around the so-called retail rip-offs. Instead, they just seem angry.

Perhaps that’s the true reason for the heat in this argument. The smug online consumers resent the idea that they might have to pay 10 per cent more than they do now, despite the much bigger massive discounts they claim from shopping on the internet.

Instead they reckon it serves traditional retailers right for apparently treating them like mugs and ripping them off.

They fail to factor in the cost of providing staff for ever-increasing opening hours, the rising cost of other variables such as energy and the horrific cost of prime property located for the convenience of the consumer.

For the record, I am an occasional online retail consumer. I don’t enjoy the retail experience, so for some purchases I have found online shopping from overseas providers is the way to go.

Do I feel a bit guilty about that? Perhaps a bit, but no more than I do when choosing to holiday overseas. In the end, consumers have to balance convenience and price as well as other factors, such as supporting local businesses in order to ensure the strength of the local economy.

Of course, many consumers think their overseas purchases don’t count. Individually, they are right, but collective actions have an impact.

Small trends can soon so distort the market that they disrupt it and permanently change it; not always for the better.

My regular example, in this respect, is petrol. In years gone by, fuel was bought at aptly named ‘service stations’. That was when you sat in your car and had someone else get their hands dirty filling up the tank, cleaning the windows, checking the oil and testing the tyre pressure. A lot of people worked in these places, which were mainly small business operations.

Then along came self-serve stations offering discount petrol, and the value-conscious consumers took their business there. At some stage there is clearly a tipping point where proper service stations lost so much business they were no longer profitable. Fuel stations that actually offer service are now almost extinct and consumers (probably the same price-chasing, penny pinching breed that started going to self-serve stations in the first place) constantly complain about petrol prices and oil company rip offs.

Who was winner there?

On the basis of the angst-ridden complaints by traditional retailers this Christmas, online consumers are, collectively, clearly having a big impact.

There is no doubt that the internet offers a better shopping experience for many goods and services, especially when it comes to price. Until recently the amount of trade was probably immaterial, but that is changing rapidly.

Purchases under $1,000 would amount to a significant amount of retail buying in Australia, so it understandable traditional retailers would be worried. There’s also evidence offshore retailers are breaking up bigger transactions into sub-$1,000 parcels to get around the tax-free threshold, and that consumers are using traditional stores to view or try goods before purchasing online. This is hardly the moral high ground.

I am no friend of retailers (I have argued before that stimulus was wasted keeping retailers in business rather than being focused on the true economic drivers) but in this instance I think they are right.

Competition is best conducted on a level playing field. Why should offshore retailers have a 10 per cent government-mandated price advantage, especially if they are already selling at substantially lower prices to begin with? Earlier this year, to justify a new tax, the government told us foreign investors were the devils taking all our mining profits. Now foreign companies taking our retailers’ profits are allowed to do it tax free. As the Americans say ‘go figure’, because it doesn’t compute to me.

It might be worth noting that 10 per cent price advantage is limited by currency conversion costs. The bank I use to purchase online charges a rather oddly named ‘overseas txn fee’ of 3 per cent on credit card transactions in foreign denominations.

If a bank can charge me 3 per cent on even very small foreign transactions (9 cents was the latest charge), I can’t see how it would be administratively any more difficult to charge a 10 per cent duty on small retail purchases overseas – even if this were to be a straight charge rather than a proper GST arrangement?

In a free market I don’t understand why some retailers selling the same goods should get a tax break when others don’t, especially when the GST is a relatively fair consumption tax that is low by international standards – there’s no Tea Party argument here for tax avoidance.

Furthermore, why on earth would the federal government accept this? Admittedly, GST revenue goes to the states, so perhaps Canberra doesn’t care about the leakage; but if it starts to haemorrhage, doesn’t that diminish federal power?

Right now, the federal government is investing $43 billion in a National Broadband Network it claims will be wonderful for e-commerce. How can Canberra allow the erosion of its revenue base when it is investing in the very infrastructure that could accelerate this trend?

On principle, every transaction by Australian consumers should incur a GST, or equivalent. The fact that this principle is also in the federal government’s best interest makes Canberra’s current position even stranger to me.

• mark.pownall@wabn.com.au

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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