Retailers put focus on whole tax system, not just GST

In the season of conspicuous consumption, consumption taxes are in the news again this week.

The British Government confirmed it would increase its equivalent to the GST (the VAT) to 20 per cent, up from 17.5 per cent.

And in Australia a coalition of retailers are crying foul over Australian consumers buying stuff GST-free overseas.

These are the same retailers, by the way, who along with their suppliers, have spent the past couple of decades scavenging around the world to find the cheapest, dirtiest labour and tax regimes possible in order to maximise their profits and savings. Mercy forbid that workers and consumers should try to do the same thing.

Evading the 10 per cent GST is not driving Australian consumers to overseas retailers. Ten per cent is simply not enough to divert an Australian consumer away from the security of physical or even on-line purchases from an Australian retailer with the attendant consumer-protection laws and retail-reputation practices that remove most of the risk from dud purchases.

Rather, Australian consumers are going online because of vast differences in prices for the same product. It is cheaper to buy Japanese camera gear online from the US than either online or in-store in Australia. And we are closer to Japan.

So it is high profit margins and inefficiency not the GST that causes the electronic flight of consumers overseas.

Sure, that inefficiency might not all be the retailers’ fault. Government regulation, planning restrictions, industrial-relations regimes and the like no doubt contribute.

But if Britain, 40kms from continental Europe, feels secure in upping its GST we can be fairly confident that tax is not the primary reason for consumers going electronically off-shore.

Nor is the high Australian dollar - a reason much cited by the retail giants. The level of the Australian dollar should surely be neutral in this. The high Australian dollar gives the same boost to purchasing power online as it does to the purchasing power of imported goods in an Australian retail store.

With one massive proviso - that Australian retailers are passing on the benefits of the high Australian dollar to consumers in the form of lower prices for imported goods and not stuffing it into their own designer-jeans pockets.

There are couple of lessons in this for government in this year of “decision and delivery”.