In opposition the Coalition promised no new taxes or tax increases. On Friday Joe Hockey announced the Coalition's latest tax increase: eliminating the GST low value threshold on imported goods.
Currently GST is not imposed on imports worth less than the low value threshold of $1000. When you buy books from Amazon or clothes from ASOS, you don't pay GST. As of July 2017, you will.
Well, you probably will. This is going to be very hard for the Government to implement.
The GST collection won't be levied when goods are imported. Inspecting packages at the border costs more money than it raises, as the Productivity Commission conclusively found in 2011. (The Assistant Treasurer, Josh Frydenberg, has been saying that "real improvements in technology" make that finding no longer true, but the inspection problem isn't really a technological one, it is a time and warehousing costs one.)
Instead, Australian Taxation Office officials are going to fly around the world to ask "hundreds" of foreign companies exporting more than $75,000 worth of goods to Australia to levy the GST at their end. Nice work if you can get it.
The politics here is obvious and unflattering.
Friday's announcement satisfies the retailers who have been lobbying for years to reduce the threshold, claiming it makes domestic goods uncompetitive.
Of course, the GST threshold is a convenient scapegoat for much deeper issues in the Australian retail sector. Even if GST were imposed on all goods, many representative products would still be more expensive sold from Australian shops than foreign ones, as I have shown. And international shipping isn't free.
Friday's announcement also satisfies Treasury and the state governments who are clamouring for more revenue. Like everything else Hockey has dressed up as a "tax integrity measure", the elimination of the GST threshold is nothing more than a tax grab.
But, politics aside, let's look at the low value threshold on its own merits.
Almost nobody in the debate has acknowledged that the threshold has been slowly lowering ever since the introduction of the GST. This is because the $1000 threshold is fixed — it is not indexed to inflation. And a grand isn't worth as much as it used to.
This is the point the Treasury's own Tax Board made in 2010, writing that inflation will "reduce over time any potential bias in favour of imported goods over local goods of the same quality and value".
So Australian retailers have been complaining about a tax distinction that has been constantly and automatically eroding in their favour for the last decade and a half.
And that's before we consider the fact that the dramatic reversal of the dollar has made domestic retailers much more competitive than foreign ones in the last few years.
The GST is usually described as a consumption tax. It is not a consumption tax because the GST is not levied on consumption. It is levied on sales by firms operating in Australia. In the real world, the GST is a sales tax with an input credit.
That observation might sound pedantic but it has big implications for the import threshold debate. If the GST is in fact an Australian sales tax, then trying to impose it on sales by foreign companies in foreign countries is not a tax integrity measure at all. It is a tax on imports. It is, in other words, a tariff.
Foreign companies do not, and should not, pay Australian taxes — just as companies in foreign countries do not operate under Australia's regulatory framework or our political institutions.
As the Howard government said when it introduced the GST in 2000, "the government wants to ensure it does not unnecessarily draw non-residents into the GST system".
And the idea that we need to raise taxes at our border in order to ensure "competitive neutrality" or to "level the playing field" is mercantilist nonsense. In fact, it's not clear why GST should be levied on any foreign imports at all, apart from a pure protectionism.
In practice, the GST is only going to be levied on foreign companies that a) provide more than $75,000 goods into Australia and b) don't slam their door in the face of Australian tax officials when they come knocking.
So there's a non-trivial chance Hockey's GST move will just encourage Australian consumers to move from bigger websites to smaller websites, trying to avoid the 10 per cent tariff.
On Friday Hockey said he has many "levers" at his disposal to "pressure" companies overseas to collect Australian taxes.
Maybe he does. But if so, that should be recognised for what it is: trying to squeeze money from foreign companies for no other reason than to satisfy retail lobbyists and feed the Government's apparently unrestrainable spending habit.
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