On December 18, 2010, the Assistant Treasurer, the Minister for Broadband, Communications and the Digital Economy, the Minister for Home Affairs and the Minister for Small Business announced that the Productivity Commission would undertake an inquiry into the economic structure and performance of the Australian retail industry. The enquiry, presided over by Philip Weickhardt, will identify: • the current structure, performance and efficiency of the retail sector • drivers of structural change in the retail industry • broader issues contributing to the increase in online purchasing by Australian consumers • sustainability and appropriateness of current indirect tax arrangements and the extent to which technology could reduce the administrative costs of tax collection • other regulatory or policy issues which impact on the structural change in the sector GAP: Available via USA Shopping Affair. The Productivity Commission is the Australian government’s independent research and advisory body on a range of economic, social and environmental issues affecting the welfare of Australians. Its role, expressed most simply, is to help governments make better policies, in the long-term interest of the Australian community. The Commission’s independence is underpinned by an Act of Parliament. Its processes and outputs are open to public scrutiny and are driven by concern for the wellbeing of the community as a whole. Further information on the Productivity commission can be obtained from the Commission’s website (www.pc.gov.au).
Key inquiry dates • Receipt of terms of reference: 3 Feb 2011 • Due date for submissions: 20 May 2011 • Release of draft report: early Aug 2011 • Draft report public hearings: early Sept 2011 • Final report to government: early Nov 2011 About the Productivity Commission National Retail Association – Gary Black
23 March, 2011
Dear Sirs/Madams, We write to request that you give priority in this inquiry to examining ways and means of eliminating the GST tax free threshold which allows imported goods (except tobacco and alcohol products) at or below $1000 in value to escape the application of GST, duty and customs clearance fees. We have written to Bill Shorten in similar terms. Given the breadth of the inquiry on the one hand and the urgency associated with the GST issue on the other hand, it would appear sensible for the commission to consider prioritising the issues to be addressed and to escalate the GST matter for immediate attention. The need for urgency is demonstrated by the preliminary analysis of survey returns we have received in response to a survey distributed by NRA to small and medium retailers who operate in some of the retail sectors that are most vulnerable to the GST exemption. Additionally we note the failures of the Red Group and Manaccom which are in part attributable to the tax concessions afforded foreign retailers and which support the need for a quick resolution of the issue. The survey analysis of 156 returns received thus far suggests that thousands of small to medium Australian businesses are being seriously and negatively impacted by the continuation of the exemption. The characteristics of these businesses are: • Invariably they are businesses which import they great majority of product they sell • The products that they sell are also available for purchase from foreign retailers • Most of the products they sell are under $1000 in value. A consequence of these characteristics is that both our Australian retailers and the foreign retailers are selling the same products to the same consumers. That is, there is direct competition between them but not on a level playing field given that the current Australian tax and customs regime gifts the foreign retailer a tax break in the order of 15 per cent to 20 per cent depending on whether duty is applicable. In more detail, the survey results show: • Impact on sales, growth and employment: - 96 per cent of retailers responding believe that the continued operation of the threshold has negatively impacted turnover, growth and employment. Additionally all respondents report that the negative impact of the threshold has been rapidly increasing over recent years and they expect it to further increase. Forty-six per cent of retailers indicated that the negative impact extended back for three years or more. • Estimate of sales lost to foreign competitors as a result of the tax free threshold: - 12 per cent of retailers estimated the loss of sales at more than 50 per cent of total retail turnover; - 19 per cent of retailers estimated the loss of sales at more than 30 per cent and less than 50 per cent of total retail turnover; - 26 per cent of retailers estimated the loss of sales at more than 20 per cent and less than 30 per cent of total retail turnover; - 18 per cent of retailers estimated the loss of sales at more than 10 per cent but less than 20 per cent of total retail turnover. • Estimate of cost to retail sector of the tax free threshold: - 76 retailers provided dollar estimates of sales lost as a result of the GST exemption – of these: - 54 per cent of retailers estimated that sales lost amounted to more than $100,000 per annum - 20 per cent of retailers estimated that sales lost amounted to between $50,000 and $100,000 per annum. In general terms, NRA estimates that the total value of purchases below the threshold from foreign retailers is in the range of $5 billion to $10 billion per annum. This means that GST leakage is in the order of $500 million per annum and lost or foregone duty and customs clearance fees is in the order of $200 million per annum. Importantly online trading is growing exponentially with annual growth no less than 10 per cent per annum expected. We also note that Treasury’s Tax Expenditures Statement 2010 issued in January 2011 estimates that in the financial year 2010-11, $460 million in GST was foregone as a result of the operation of the low value exemption for imported goods. This amount is estimated to rise to $610 million in the 2013-14 financial year. • Retail is an importing sector: - In the case of survey respondents, 80 per cent of retailers imported more than 90 per cent of their product. These retailers are selling the same imported product to the same customer as are the foreign retailers. The Australian-based retailer however is required to pay GST, duty, customs fees, the cost of GST administration and compliance, and the cost of compliance with the Australian Consumer Law. • Impact of tax free threshold on employment: - The great majority of respondents reported that employment has contracted as a result of the threshold and the competition from cheaper, low-value imports. If the survey returns are representative of particular sectors of retail we estimate that the threshold has already cost over 2000 jobs in these particular sectors alone. On average each survey respondent has shed between one to two jobs which they attribute to the tax free threshold. It is NRA’s view that there is a compelling case for the Productivity Commission to prioritise the tasks ahead of it in the conduct of the retail inquiry and to elevate the discussion about the GST tax free threshold ahead of all other matters. While there may be differences in approach, we believe the retail sector is unanimous in wanting this matter urgently addressed. With respect, we say that the key facts associated with the operation of the exemption are largely self-evident and the case for change is impeccable. What is needed most is an urgent discussion about methods of implementation which will ensure the most efficient collection of GST, duty and customs fees.
Regards, Gary Black Executive director National Retail Association USA Shopping Affair – Charmaine Graham
April 14, 2011
Dear Sirs/Madams, I would like to make the following observations regarding the current debate specifically relating to the existing GST tax free threshold on the importation of items for personal use that are valued at or below $1000. Firstly, I note that there appears to be the notion that removing or reducing the $1000 tax free threshold will address some of the challenges faced by Australian retailers. Even with an additional 10 per cent GST charged on imported goods, consumer behaviour would unlikely change as many products will continue to be significantly cheaper to purchase online from overseas retailers. The overall result of a change to the tax threshold would be an increase in government spending with little change in consumer behaviour. Would it not be better to have Customs utilise their resources to police the illegal importation of drugs and other prohibited items that have a detrimental social and financial impact of all of Australian society? Secondly, this debate has highlighted that the traditional concept of a bricks and mortar retail outlet has significantly changed and will continue to do so with more consumers electing to shop online. The implication of this change in consumer behaviour is the requirement for Australian retailers to offer online shopping in order to remain competitive. Retailers are no longer competing against other retailers on the same street or in the next suburb. In today’s marketplace retailers are now competing with retailers in other Australian capital cities and even in other countries. This globalised marketplace can be seen as providing exciting opportunities to reach broader markets particular for those retailers offering unique, quality Australian products.
Yours sincerely, Charmaine Graham Managing director USA Shopping Affair Philip Weickhardt SOURCE: The information in this report has been extracted from the Productivity Commission Issues Paper on Economic Structure and Performance of the Australian Retail Industry and www.pc.gov.au. Peter Fleming
April 7, 2011
Dear Sirs/Madams, I note with some concern the calls by self-interested retail billionaires to drop the $1000 threshold. Online shopping is a boon for Australian consumers who for years have been ripped off by importers and retailers. In my view this growth in online shopping will help to underpin the government’s NBN strategy. By definition, virtually none of the imports have competitive products made in Australia. Retailers must become more efficient and embrace the online shopping revolution. Virtually all the adults I know aged between 18 and 50 to 60 shop online to varying degrees. I (like many other consumers) believe the threshold should be increased to $2000.
Yours sincerely, Peter Fleming Gerry Affat
February 3, 2011
Dear Sirs/Madams, I am your average member of the public struggling to make ends meet like most of us these days and I am intensely irritated by the select group of multimillionaires/billionaires crying poor and wanting a level playing field. This same group of individuals have in the past forced many small businesses to shut their doors, so reducing the choice for the public to shop. Now they fear that the global economy is doing to them what they did unto others, they suddenly want the government to change the rules to suit their agenda. My reason for shopping online is not to save the 10 per cent GST and imposing this on overseas online sales will not force me through the doors of Harvey Norman, Just Jeans etc. My main reasons are: • I can’t get the products I want in Australia. I am a part-time luthier and have to source many of the specialised items from overseas – often paying a premium in terms of freight and shipping which can easily add 100 per cent onto the cost of the product depending on the weight. • For the items I can purchase locally, these are often two to three times the price of the overseas sites. So even with postage and GST I am still ahead. • I have greater choice online with both local online sites and overseas. I don’t have to pay any exorbitant parking fees and I can find the best deal, decide what I’m prepared to pay and order it – all within minutes. • I get better customer service from online sites than I do from retail shops as this is how the online sites do business. It seems that the retail shops here prefer to have me forced to buy from them rather than have me want to buy from them. The GST on online sales aspect is merely a convenient excuse for these large retailers to change the rules to suit their purposes. Retailers should look at the following to improve their business model: • Bring back good customer service • Be competitive with their pricing, after all they do have the buying power so should be able to pass the significant discounts on to the consumers • Provide us with more choice rather than say this is what we have – take it or leave it. Obviously I and most other people would leave it and go online • Make shopping a more pleasant personal experience and we will want more. I would like to provide you an example of where I tried to do the right thing and support my local business. I was after a specific part for a guitar I was building and I contacted the manufacturer overseas who directed me to the Australian distributor. I contacted the local distributor who confirmed that they did have the part in stock and gave me the name of the nearest stockist who so happened to be five minutes away from my home. So bear this in mind. I live in Brighton East in Victoria, the local stockist was five minutes away from me and the local distributor was in South Melbourne. I went into the shop and ordered the part, providing the exact details of the item so the shop attendants didn’t even have to do anything other than take the order. I paid for the part in full and was told to give them five to seven business days so say up to 10 days including the weekend. Remember the distributor is in South Melbourne and he had the item in stock so why five to seven business days? Anyway after seven business days and no call I went into the shop to find out if the item had been received. The staff then rang the distributor to find out where the order was and was told that it would be on its way so to give it another three days. After three days and no call I went back in and same story, they called the distributor and I was assured that it was definitely on its way. Again after another few days and no call I went back in on a Friday afternoon. This time when they picked up the phone to call the distributor I asked them to cancel the sale and refund me my money. The sale was for $270 which to a small business should have been valuable enough to look after. I went straight home and got online and ordered the part from a site in America. The part cost me US$195 and US$25 in express shipping. I ordered it on a Friday afternoon and received it on Monday morning. What better service could I ask for! The 10 per cent GST is not the driver for online shopping. These retailers just do NOT get it. If we are so concerned about lost GST and other indirect taxes, then should we not also be looking at exports. I know for a fact that, where marine diesel fuel goes into a ship heading for international waters, the fuel is sold duty-free. There would be countless other examples, I’m sure. So if we’re talking about equity then let’s look at both sides of the equation, and also look at why there is such a large disparity between overseas and local prices. I hope I have managed to give the commission a view from the consumers’ side of the fence without sounding too emotional. I am normally one of the silent majority but felt compelled to voice my opinion in this matter.
Yours sincerely, Gerry Affat James Robinson
February 6, 2011
Dear Sirs/Madams, I would like to suggest that the above inquiry should take the opportunity to examine retail price maintenance. Introduced many years ago to increase competition at the retail level, my experience suggests that although consumers were supposed to benefit from the legislation, the problems generated by this legislation outweigh the advantages.
1 Because retailers are able to sell cheaper than their competition, there is a continuing stream of new retailers basing their whole business around cheaper prices. This results in a high failure rate of new businesses and subsequent losses to their customers and suppliers. During their short life cycle, they also take business from established retailers, who understand that a level of profit is needed to survive. This even flows through to landlords who lose from unpaid rents. This loss is then factored in when future rentals are calculated. In short good retailers pay for the ‘fly-by-nighters’.
2 Consumers inevitably suffer when they lose deposits when a firm fails. They also suffer from reduced customer service, as stores have to reduce sales employees, to subsidise lower selling prices. Or pay inflated prices, in between sales events, just to satisfy trade practices requirements. When recommended retail prices could be enforced by suppliers, retailers had to offer better service and other ways to compete besides price. I believe that competition still existed, under the old method. It was simply at the wholesale level rather than the retail level. In extreme cases where there is little competition, there already exists the Monopolies Act. If a supplier sets a recommended retail price that is too high, his competition will take the sales, unless there is a justifiable reason to pay a higher price.
Either way, the consumer wins by having a choice between low price or better quality. There needs to be a better balance between price, quality and profit. At the moment profit seems to be a dirty word. No profit – no employment! I have made the above observations based on 40 years in the furniture industry, as both manufacturer and retailer. I currently manufacture and retail my own products. I have watched so many good businesses give up, and I believe that the above reasons are a major cause.
Yours faithfully, James Robinson Carlo Di Giulio
March 20, 2011
Dear Sirs/Madams, The following is my contribution to the Productivity Commission’s invitation for comments in relation to Australian retail industry. Urban planning practice to date encourages a specific physical form of retail centres, particularly within ‘greenfield’ subdivisions. Retail centres in new suburbs are similarly designed. They generally consist of a parcel of land, under single ownership, where the physical form is almost completely internalised. The physical form is also often dominated by one or two large ‘anchor’ tenants and a smaller component of independent retailers. Such larger ‘anchor’ tenants have found it difficult to date to compete with ‘online’ retailers. In this case, current urban planning practice is contributing to the creation of a retail industry which is becoming increasingly vulnerable. Such physical forms and their repetitive nature make retailing vulnerable to impending changes within the retail industry. Should new retail centres consist of lots under multiple ownership, with greater variation in lot sizes, they will include the dynamism required to adapt to changes within the sector in a timely fashion.
Sincerely, Carlo Di GiulioRoger Moore FCPA FCIS
March 23, 2011
Dear Sirs/Madams, For the information of the two commissioners conducting this enquiry, I have read the five points made by our assistant treasurer Bill Shorten concerning the scope of the enquiry. I have made some points you may consider worthy of bringing to his attention: 1 My daughter owns and operates a beauty clinic at South Yarra. The business which she operates on her own with her mother as receptionist provides the usual array of beauty services and sells products that complement these services. The revenue split between services and products is about the same. 2 An increasing and growing problem the business is confronting is that many clients are now sourcing the products she sells from Hong Kong. She is at a competitive disadvantage because those items under a $1000 are not GST taxed. This is unfair to my daughter’s business and to Australian government revenue. 3 I heard James Stewart, a partner of Ferrier Hodgson on February 13, 2011 on the Alan Kohler ABC Show say he believed currently two per cent of all retail sales in Australia were being done over the internet. I think he was suggesting we could see this rising to about eight per cent which apparently is the USA and UK experience. 4 There is concern that many of the products coming out of Hong Kong are copies and may have ingredients in them that may even be harmful to the user. One Australian wholesaler we spoke with claimed that her principal, Gatineau of Paris, did not know where the Hong Kong outlet was sourcing product. 5 Competition is necessary to develop an efficient and vibrant economy but let us have every participant play by the same rules, eg GST apply to every transaction. In conclusion I would like to make the following points: • I think our government needs to be much quicker in responding to situations like GST on all transactions. It is not good business to wait 12 months before taking action. • There seems to be perceptions in government that people owning a small retail business are substantial capitalists. This is usually not the case and many earn less than their employees. • As a former CPA public accountant who looked out for hundreds of small businesses, it was my experience that any slight disruption in the economy caused great stress and casualties. • When I look at the background of most of our politicians it seems to me they know very little about the small retailers. Maybe the Retailers Association could run some sessions and give them a better insight so their decisions will be better informed.
