Monday, December 20, 2010

Up against it

The RBA's great experiment of attempting to shift Australia from unproductive investment and overspending to productive investment and saving is about to confront a new challenge.

One of the more powerful sectors in the gun is retail. The rumblings of household heros such as Gerry Harvey and Solomon Lew are congealing into an RSPT-like campaign against the sub $1000 online purchase exemption to the GST.

The first point to make about this is that the campaign is up against it in winning over the public. Anti-RSPT miners had three advantages that the retailers do not. The tax was distant and complex, making it a PR-makers dream to combat. All it needed was a million conflicting 'facts' and the population gets lost, the policy ceases to make sense and, in the confusion, the clear message of risk shines through.

The retailers on the other hand are attempting to increase the price on sub $1000 household goods. For consumers it is a personal and very clear affront.

Second, the RSPT debacle unfolded in a very different political economy. The combination of an election and a post-GFC moment in which mining was at least one part of saving the nation made the anti-RSPT message stick.

The retailers face an environment of higher interest rates and one in which although the economic recovery is reasonable, it is patchy.

Moreover, just about every official and private economist everywhere has been selling the nation the idea that we need to shift economic resources to the resources sector so it's moment in the sun is not dimmed by labour or infrastructure bottlenecks.

Other sectors need to give it up, according to this chorus.

Another difference to the anti-RSPT campaign is that its goal was to prevent a new government policy. The retailers want to create new government policy that will fly in the face of RBA objectives and rhetoric.

If the world is rational, this should be an uphill battle for the rent-seeking retailers. But you never know. Retail is powerful. Former Reserve Bank board member Frank Lowy is already on the record as sympathetic.

This will be an interesting test for combined RBA and government policy. The media will be key and this blogger is keen to see how 'business-friendly' outlets respond.

The combined export sectors of tourism, education and manufacturing have completely failed to impact policy despite being in full-blown recession and being much more important to the nation's future.

Retail certainly shouldn't either. Most especially because any shift to make offshore retail less competitive ipso facto means more money spent locally, which greater inflationary pressures, a higher dollar and more carnage in the export sector.

Retail is part of the over-spending problem and the ideal sector to carry a significant share of the cost of rebalancing toward productive investment drivers for the economy.


Anonymous said...

Now Frank Lowy wouldn't have a vested interest, would he?

Anonymous said...

the retailers need to change their models if they are to compete. after all that is what you do in a free market economy..... my guess is that they are just not quick enough and the A$ vs US$ has caught them out

the GST thing is a red herring as the cost of collecting the GST would be more than the revenue..... is this a campaign to soften up the shareholders for a disappointing half year result.
I was at a large market on the weekend and all of the holders were complaining that many lookers not buyers and those buying were spending a maximum of $15.... results will be telling,

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Torchwood1979 said...

As I understand it one reason the Government doesn't charge GST on online imported items under $1K is because the cost of recouping the tax would actually exceed the revenue collected. We studied this in the introductory electronic business subject at uni, but I can't remember the details. Can anyone shed more light on this? If this assertion is correct Gerry and the others are effectively expecting Australian taxpayers to subsidise their revenue.

In other news I've just had another staff meeting, and sure enough another briefing about how our revenue is stuffed next year due to low international student enrolments and how all those projects we want to undertake probably won't happen. The executive at my uni are starting to sound like broken records.

Anonymous said...

Interestingly, it is the countries mired in deflationary outlooks, U.S. and Japan, that are winning in the online retail space. Furthermore, after doing formal research in Japan on the purchase decision process, it appears that there is ample opportunity for the traditional retailers to win online and in-store depending on their strategy. Sure, the Australian consumer is different, but you can definitely draw some conclusions that are similar between Japan and the Western countries.

Anonymous said...

A simple solution would for government to remove GST from purchases anywhere (i.e domestically as well) on all products under $1,000.
The lost revenue could be clawed back via increasing the entire GST to 15 or 20%, which is a better rate, to discourage consumption.
Of course, this is too simple.
For Australian retailers to be competitive, government needs to eliminate payroll taxes, compulsory superannuation contributions, Workplace Health and Safety insurance premiums, reduce the company tax rate to 15-20% and a raft of other measures.
Of course, there are some businesses that should increase their competitiveness: Harvey Norman is nowhere near as good as JB Hifi, but the latter could also have a better online presence.

Chris B.

The Lorax said...

I actually have some sympathy for retailers on this issue. What we have here is an anti-tariff where goods sold locally are taxed, but goods sold online by overseas merchants are not.

However, killing the local retail sector is entirely consistent with the overarching government policy: The Quarrification of the Australian Economy.

If we're going to kill off manufacturing, education, tourism and ever other trade exposed sector so mining can prosper, retail should take some of the pain as well.

The Ducth Disease should be applied fairly and equally. We all need to make a contribution to Twiggy's bank balance.