When I first read about our biggest retailers joining forces to lobby the government to start imposing GST on overseas online purchases under $1,000 due to (according to them) the threat of job losses in the Australian retail sector, I must confess I was curious about their stance.
Don't get me wrong, I'm all for supporting Australian business, especially our small to medium enterprises (the backbone of our economy), but I can't help but feel the underlying issues are more about the big retailers' inability to effectively embrace and establish themselves as a competitive force in the online world than it is about saving jobs and collecting GST. Furthermore, the speed and size of the backlash against their proposal was breathtaking - evidence of the willingness of consumers' to collectively vent their objections through social media forums like blogs and Twitter - something the retailers probably should have been more mindful of before launching their campaign.
The fact is that many Australian families are and will continue to struggle financially over the coming year or so (something I'll address in an upcoming column) and they need all the help they can get. If that means they can save a few dollars by buying overseas then I say good luck to them. What really surprises me about the retailers' stance is that they're suggesting customers should pay more just because they're buying online and/or overseas - and don't forget most of these online customers will be their customers as well. This is hardly the stance of businesses looking to generate public support and goodwill.
However, reducing the GST threshold is obviously something the larger Australian Retail Association members (and even some of the smaller ones) feel strongly about, so let's take a look at some of the arguments against and for their proposition.
Arguments against
The reality is that consumers buy online not to avoid paying GST but to get a better deal. Why should they pay full retail price when they can get 30%, 40% even 50% off by buying online and/or from overseas 24/7? And let's remember that most products and services these days are commodities (that is, there's limited differentiation between them unless they're niche or speciality) and therefore consumer loyalty is more about the product or service brand than the retailer or distributor who sells them.
For instance, most people have already chosen the type(s) of the flat screen TV(s) they're interested in and therefore it becomes a matter of finding the best price than product. A known brand 30" LCD TV is the same whether you go into a shop or buy it online and if one sales channel offers a substantial discount then that is where the consumer is likely to shop. A number of retailers have already embraced this concept in-store but plenty haven't so it may be time for the rest to start thinking about their pricing strategy, especially given the strength of the Aussie dollar.
Next there's the issue of choice. Consumers get access to a much wider range of products and services online than a retailer can reasonably expect to stock in-store and in many cases they get a better standard of customer service as well. Furthermore, there may be overseas brands the retailer chooses not to sell. Is it fair to penalise consumers in these circumstances? Probably not. It's not their fault Australian stores choose not stock these items and it seems reasonable they should be able to source them wherever they can without being slugged extra costs for the privilege of doing so, especially since in most cases we're talking about low value items like books, games and CD's.
Another important argument against the proposal concerns those in rural and isolated areas. Often their only option is to shop online. What do they do if what they want isn't available from Australian suppliers, or is available at a higher price or provided with a lower service standard (e.g. expensive or delayed domestic shipping)? Why should they be disadvantaged? And let's not forget the planned rollout of the national broadband network which is about more than simply giving rural Australians access to quicker e-mails and movie downloads - it's about connecting them to the rest of the world as well.
We should also remember the online space works both ways. For example, there is nothing stopping Australian businesses selling overseas and taking advantage of foreign countries' tax systems, just as is the case here. Furthermore, the last thing we want is a tit-for-tat tax response from foreign governments which would otherwise disadvantage Australian exporters.
Arguments for
One of the biggest concerns raised is that job losses will ensue unless the retailers' proposal is adopted. Again, GST is not the issue but rather how and where the retailers compete and the value and shopping experience they offer their customers. In fact, according to the Treasury less than 3.0% of sales are made online at present and of these less than half are done through overseas websites.
So we're not talking about big numbers and it seems unlikely there'll be the imminent job losses the retailers would have us believe are around the corner. (As an aside, I wonder how many small businesses suffered or were put out of business when their bigger rivals under-cut them and took market share away?). However, this situation might change in five or ten years time if the experience in the US is anything to go by, where online sales are showing phenomenal year on year growth - a sign of things to come perhaps.
Another worry is that profits will fall as margins reduce. Well, I hate to say it but that's what happens when there's competition which is, as we all know, good for the consumer. And don't forget that encouraging greater competition is something the government started promoting not that long ago when banks and home loan interest rates (see my previous column Banking on a profit) were making headlines - so if it's good for the big banks, it should be good for the big retailers as well. Having said that, I support steps to stop importers rorting the GST threshold; better to see government (through the Productivity Commission) focusing in this area rather than on consumers looking for a cheap online bargain.
And let's not forget it's not all doom and gloom. There are plenty of examples of successful and profitable large and small online stores making money through offering competitive prices supported by low overheads. There is nothing preventing the big retailers (or any other business for that matter) getting with the program and starting to develop a leading online presence. Many already have. They just have to make them more competitive and customer friendly.
Another argument for the proposal concerns those who don't have access to the Internet and therefore can't get cheaper prices. While there are fewer and fewer people in this category there are some who would be disadvantaged. However, instead of slugging everyone else with higher costs perhaps the retailers should think of ways to help these consumers so that everyone benefits.
The final argument is that overseas stores add nothing to the Australian economy. That is, goods and services are manufactured and provided overseas and the money leaves the local economy when payment is made. I have some sympathy for this view but let's keep things in context (where not talking about a lot of money at present) and the fact is that we live in a global economy and that's how it works. We have to find products and services (other than our natural resources) that overseas consumers want to buy.
The road ahead
In a world where the customer is king and the Internet has created a global market place, reducing the GST threshold is not the answer to making Australian bricks and mortar retailers sustainable and profitable operations. Rather than hit customers with extra costs, retailers (and the Government) should focus on investing in the future, better understanding customer needs and building loyalty - in-store as well as in cyberspace. It is, I'm afraid, a case of adapt or die and consumers are clearly telling the big Australian retailers it's time to adapt.
Do you think the big retailers' demands are reasonable? Have you shopped on overseas online websites? Where did you get the best value and service?'(Share your views below)
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