Why Adding GST To Online Sales Won’t Create A Level Playing Field

The push to add GST to all online sales made to Australians — not just those which cost more than $1000 — appears to be gaining momentum. The argument is that we need to create a “level playing field” for Australian businesses, but when the price difference for some goods is already as high as 200 per cent, the idea that increasing overseas costs by 10 per cent by adding GST will cause a change in buying habits is frankly laughable.

Playing field picture from Shutterstock

Currently, GST only applies to online purchases if you spend more than $1000. The basic logic behind that threshold has been that the cost of imposing GST (and other customs duties) on goods as they arrive into the country is higher than the extra tax that would be collected.

Local retailers have long pushed for a change in that approach, arguing that it is fundamentally unfair that they have to charge GST to Australian customers but their overseas rivals don’t. These arguments are often remarkably self-serving and inconsistent, but that doesn’t stop them being made.

In recent weeks, state government leaders have also pushed for a change, since they rely on GST revenues to fund much of their activity. The National Retail Association has also called on the Coalition government to alter the policy, using the “level playing field” argument.

It’s still far from evident that the amount raised would actually cover the cost of collection, but there’s a simpler problem with this argument in commercial terms. As we’ve pointed out before, the price difference for many items is far higher than 10 per cent. It’s often the case that even with added postage and (for argument’s sake) an added 10 per cent, buying from overseas remains cheaper.

Given that, why would anyone change their buying behaviour? The playing field is already so far from level that this one switch seems unlikely to make any difference.

A study released today by CHOICE covering the fragrance and cosmetics market further underscores that point. CHOICE compared the cost of some popular products through large retailers’ online sites (David Jones in Australia, Boots in the UK, and Walmart in the US). Here’s what it found (with prices converted to Australian dollars):

Product AU AU (ex GST) US US in AUD % diff UK UK in AUD % diff
MAC Lipstick $35 $31.82 $15 $15.77 102% £15 $25.33 38%
Revlon Colorstay Ultimate Suede Lipstick $25.95 $23.59 $7.48 $7.86 200% £8.99 $15.18 71%
Clinique Chubby Stick Moisturising Lip Colour Balm $35 $31.82 $17 $17.87 78% £ 17 $28.71 22%

As CHOICE researcher Kate Browne put it in a statement announcing these results: “There is no way price differences of this size can be explained by the usual arguments we hear about supposedly higher costs of doing business in Australia.” Until those differences are less apparent, our shopping habits are likely to remain online and overseas.

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