Online shoppers: get ready for prices to double

A plummeting dollar and a GST on international transactions will see the cost of shopping online skyrocket.

The golden age of online shopping is over.

This week the Australian dollar fell to a new six-year low of less than 73 US cents, spelling more bad news for international online shoppers.

And there is no relief in sight. Many economists now predict we are looking at a longer-term value of 65 US cents, meaning you’ll get even less bang for your Aussie buck at US-based online stores.

But if that’s not annoying enough for you, then prepare for the double-whammy: it looks like you will soon be paying GST on top of that.

At the Council of Australian Governments (aka COAG) meeting last week, state premiers agreed in principle to reduce the GST low value threshold (LVT) for overseas transactions.

Currently the threshold stands at $1000. That means anything that costs less than $1000 is GST-free. Books, shoes, clothing, cosmetics – as long as they’re under $1000, they’re tax free.

But Treasurer Joe Hockey said in an interview with the ABC on Monday that he is considering lowering that threshold to $20 or even zero.

Doubling the price

Since mid-2011, the Aussie dollar has fallen from $US1.10 to 73 cents. As the table below shows, this has already pushed up the cost of goods imported from the US.

But imagine the dollar falls to 65 US cents, and the GST is extended to all imports. And on top of that, imagine NSW Premier Mike Baird gets his way and the GST is increased to 15 per cent.

As the table shows, the result would be that imported goods would become almost twice as expensive as they were in 2011. For online shopping junkies, that would translate to annual inflation of 25 per cent.

gst-price-comparison-v03

The argument against

While it may seem only fair that all retailers should pay GST, there are actually strong arguments on both sides.

The strongest argument against lowering the LVT is that it would cost far more to implement than it would to raise in revenue.

In 2011, the Productivity Commission estimated that lowering the LVT to $20 would raise $550 million in tax revenue, but cost $2 billion to administer. That’s a loss of $1.45 billion, an expense that would be passed straight on to consumers.

For this reason the Productivity Commission said the Government “should not proceed to lower the LVT until it is cost effective to do so”. Consumer advocate CHOICE agrees.

The argument for

Myer says a $20 million investment in the business is the key reason for a 23.1 per cent profit slump.

But Russell Zimmerman of the Australian Retailers’ Association believes there is an easy way around this.

“You just write to everybody that sends goods from overseas, and you simply say to them, ‘You need to register for GST’.

“Now we know that about 80 per cent of the products that come in come from between 50 to 100 overseas retailers. Over a period of time you would collect the rest of them.”

As for the smaller online retailers that fall through the gaps, Mr Zimmerman said that the parcels will get slowed down, the consumer will be slapped with an unexpected GST charge, and people will stop using those websites.

“So by natural cause you will collect the GST.”

Mr Hockey said in Monday’s interview that this is precisely the approach he intends to take.

“Now we can go to the Amazons, we can go to the various retailers overseas and say, you have to apply the GST to goods that you are selling into the Australian market, and they will do so. And that’s how we’re going to collect it,” the Treasurer said.

 

[“source – thenewdaily.com.au”]