States and retailers fooling themselves over GST

November 7, 2012, 9:16 am Michael Pascoe Yahoo7

Simply applying the GST to the sale of internet goods won’t be enough to plug the widening cracks in State budgets.

What do the State treasurers and many local retailers have in common? They’re both in financial trouble and they’re both deluding themselves about the impact of GST on internet shopping.

The push is on again to lower the current $1000 level at which overseas internet purchases are liable to pay the 10 per cent GST. Various hapless retailers apparently believe applying the GST to international online shopping will suddenly drive customers back into their shops. Probably not.

And various more hapless state treasurers have a crazy idea that they can escape smashing into their looming fiscal walls if they can just pick up the GST revenue presently forgone by the those traitors armed with a credit card and a mouse. Definitely not.

For a start, the reason why there is a $1000 threshold on international goods subject to GST collection is that below that level, it costs more to collect than is raised – as has been diligently explained by a thorough Productivity Commission report. Before the treasurers and retailers have a ghost of a case, they’ll need to come up with a cheaper way of collecting the tax.

More importantly from the retailers’ perspective, a 10 per cent price differential isn’t what drives people to shop on line. Even with the GST, the online alternative will remain substantially cheaper and the range and convenience factors often trump that again. E-tailers are only going to become more professional as they continue to refine their craft, leaving the dinosaur off-line shops floundering if they can’t improve their offer, experience and service, as well as contain their costs.

Meanwhile, back at the states, each treasurer knows former NSW Nick Greiner is correct is telling us we’re stupid not to even consider extending the existing GST – and he’s not talking about internet sales. Each treasurer knows they’ve eroded their existing tax base and that they’re facing inevitable expenditure increases brought on by our demographics.

The bell was rung for me during Kevin Rudd’s attempt to take over all the funding of the states’ hospitals. It was admitted in that process that, soon enough, just the hospitals would chew up the entire GST.

Our aging population and the high health insurance inflation rate mean the states are running out of cash – and that’s before building infrastructure and improving the educational offering that we need if we want to remain a high-income nation.

But the treasurers remain politicians first and responsible administrators last. Each of them knows that, whatever their political party, if they dare raise the idea of extending or increasing the GST, their opposition will hound them from office.

Their failure is more blatant in the area of stamp duty on real estate sales. They all know this is a bad tax, a tax that is iniquitous, that does economic harm and that should be replaced by a broad land tax that does not exempt the family home – but they are all too gormless to suggest the necessary reform, preferring to hang on to their own jobs rather than do what’s best for the country.

There has been just one exemption to that so far: the ACT. The territory government has faced up to the evils of stamp duty and are phasing it out, replacing it with an effective land tax. But to avoid the political backlash, the ACT government is making the change over 20 years so that any one politician won’t have to pay a political price. At least it’s a start.

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