Extending the GST on imports of low value would harm taxpayers, and do nothing to revive Australian retail fortunes.
As if a broken record, the policy advocacy tune for extending the base of the Goods and Services Tax in Australia has been on repeat these last few weeks.
A clear target for those looking to extend the GST into even more nooks and crannies of our lives is the exemption threshold for low value goods imported into this country, presently set at $1000 and under.
It is asserted the GST exemption is hurting the High Street "bricks and mortar" retail business model, as customers increasingly look to buy items from websites maintained by overseas retailers and other suppliers.
The argument goes that if inexpensive, yet GST-exempt, imports can be taxed, then there would be greater equity in tax treatment and governments could gain a revenue windfall to spend.
But Australians should look askance upon arguments that broadening out the GST capturing our favourite imported books, dresses, shoes, laptops and the like, would be advantageous to consumers and taxpayers alike.
For a start, as my recent research has noted, it is not the case that simply slapping GST on low value imported items will necessarily eliminate price differentials between expensive domestic retail goods and their cheaper overseas equivalents.
Some Australians do choose overseas online shopping on account of price differences, and surely it is their right to do so, especially when they're seeking to stretch their limited disposable incomes further.
Indeed, the global e-commerce market has been a welcome boon for lower and middle income earners, who can now access cheap product varieties formerly the preserve of rich airline travellers accessing duty-free goods.
As the Productivity Commission and other economic researchers have noted, the Australian retail sector is beset with high costs, from an internationally comparative perspective, which a new tax just won't fix.
The burdens of prescriptive regulations, applied to labour markets and land use, means that the high costs of penalty-rate wages and exorbitant commercial rents, respectively, pass onto Australian consumers in the form of higher, uncompetitive prices.
Ignoring the effects of domestic regulations inflating retail costs and prices, the vigorous retail industry campaign to extend the GST is ill-conceived strategy and needlessly antagonises the cashed-up Australian consumers the industry needs most.
However, to excuse the pun, we would be selling Australian buyers short if we simply conceived them to be voracious low-price seekers only.
Retail trading hours legislation, for instance, limits the times that domestic retailers can keep their doors open, meaning online shopping genuinely provides 24/7 retailing that many time-poor people prefer. And so removing byzantine regulations that keep domestic retailers closed, when customers would prefer otherwise, could help the industry.
During the course of the present debate, some policymakers have been inclined to ask why some countries with value-added taxes impose much lower import tax-free thresholds than we do. For example, Canada and the United Kingdom imposes exemption thresholds for imports valued between $A20 and $A30.
But it may be that rather unique circumstances facing revenue collection authorities, in both of those countries, have had some motivational influence in maintaining low VAT thresholds.
Canada shares a border with the United States, one of the largest economies in the world not to impose a federal VAT, and so Canadian authorities have imposed a very low import exemption threshold for its federal GST to wrangle as much revenue as they can.
The UK, on the other hand, has several "tax havens" domiciled under its jurisdictions including low-taxing islands in the British Channel. On some accounts, the current British VAT import threshold was instituted in response to complaints by High Street retailers of a loss of sales to sellers with an online presence in the tax havens.
But to solely contemplate the revenue implications of lowering tax thresholds for imports would ignore a wider range of factors that must be considered when establishing good tax policy.
The father of modern economics Adam Smith, no less, enunciated a range of taxation principles, and one of those was that taxes should not be overly expensive to collect in the first place.
Reviews undertaken in Australia, and in other countries, have investigated the administrative costs of collecting additional taxes on low value imports and have mainly concluded it is not worth the effort to do so.
The Productivity Commission in 2011 modelled the effects of radically lowering the GST exemption threshold, and found "in most scenarios estimated, total collection costs would still exceed additional revenues or generate net efficiency losses for the community."
It is true our near neighbour, New Zealand, also imposes a lower import GST exemption threshold, estimated at about $A360. However, a recent New Zealand Customs review similarly concluded "a lower de minimis would not produce worthwhile net gains in Crown revenue and would increase compliance costs for importers".
The high-tax protagonists in this particular GST debate appear to forget there are sound economic reasons why governments would, in fact, select a high tax exemption threshold for imports.
As evidenced by the progressive lowering of customs tariffs over the last 30 years or so, Australia has forged a reputation as a more open trading destination and, so, a high GST import exemption threshold happens to be consistent with such policies.
Let there be no doubt that cheap, GST-exempt imports have benefited consumers in terms of accessing more abundant goods and product varieties, but also by keeping a lid on domestic price inflation. The relatively high Australian GST exemption threshold on low value imports has also exempted shipments of minimal value from the inconvenience of customs formalities, a trade-friendly regime especially valuable to smaller sized importers.
Also considering the fact that extending the GST burden would simply aggravate Australia's lack of tax competitiveness, lowering the GST import exemption value would be detrimental to the interests of the taxpaying public.
In the end, slashing the $1000 GST import threshold is nothing more than a protectionist ploy to discourage global online shopping and privilege domestic retailing, using the general tax system rather than selective tariffs to do the dirty work.
If policymakers cave into the calls for an extended GST on imports this would be a major step away from the pro-consumer, trade facilitation policies Australia has worked so hard to institute.
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