Wednesday, August 3, 2011

special treatment


For some time, 3 Big Retailers have been sooking about Australian consumers buying goods online. I’d like to take this opportunity to sook about the Big 3 sooks.
Australia’s retailers are suffering, say 3 retailers, because Australians are buying stuff overseas online. They can’t compete, say the Big 3, because overseas sellers don’t have to charge GST on sales under one thousand dollars. When Australia’s retailers suffer, shop assistants lose jobs, say the Big 3, best level the playing field by collecting the GST on overseas purchasers.

Although I can’t say I’ve seen a large outpouring of public support for the idea, it seems the possibility of imposing GST on these transactions is under serious consideration by the government.
Recently, the Age reported VISA, the global payments company, has dismissed the ideas of collecting the GST [sales tax] on overseas purchases by Australian shoppers. It would be unworkable, says Visa, and could lead to litigation or damage its reputation.

It goes without saying many of us would prefer GST free shopping, but several other aspects of this complaint from the Big 3 are galling.

Company profits are, quite simply, reward for risk.
There is no sliding scale that allows for governments to take a matching portion of profits or reward when they absorb a portion of a company’s risk.
Some businesses expect governments to help them, simply on the offchance they’ll keep Australians employed.

There is no question that businesses provide jobs, and governments ought help businesses where this will help create or maintain employment. What I do question is the assumption that all businesses always create jobs for Australians.

We have, in recent years, seen a growth in the rate at which businesses create jobs offshore. Iconic Australian owned products – e.g. Bonds singlets – are now made overseas. This year, Heinz Australia closed some of its Australian plants and shifted jobs to New Zealand. Like many corporations around the world, Australian businesses reduce the number of jobs available to Australians by using phone rooms in India.
The Big 3 retailers are not sending manufacturing jobs offshore, because for a very long time they bought goods manufactured overseas anyway.

In short, there is no unbreakable link between the health of Australian businesses and the number of Australian jobs.

Until the late 1960s/early 1970s, Australia and New Zealand were effectively Britain’s farm. We were no longer useful once Britain began recovering from World War II, and decided to throw its lot in with the EU [European Union].

While Australia still derives much of its income from Primary Industry – mainly by digging big holes in the ground and shipping the diggings offshore – like most developed countries we have moved from a focus on primary industry, through a manufacturing stage and into a world where services are major employers.

As the world shrinks and as formerly third world countries develop, they are better placed than Australia to make money from labour intensive businesses.

Beyond making sure we can always feed ourselves if we have to, it’s a good thing for both Australia and for the Philippines, for example, if we import bananas. Everyone in the world needs water, shelter, food and work, so I’m not a “buy Australian no matter what” nut.
To be honest, if I ring my telco with a problem, I do it late at night so I’ll be patched through to India. Their phone room people are easier to understand, infinitely more patient, always follow up when they say they will, and are never rude. [Admittedly no all Indian phone rooms are great, but this lot are.]

Where we are letting ourselves down is in failing to adapt quickly and creatively to today’s economic reality and tomorrow’s inevitabilities. We need to use our talents to take advantage of those things developing countries do not have. We need to develop our own unique products or services or know how, and find our own niche markets where developing countries cannot compete.
[Developing carbon neutral energy sources would give us an economic edge, whether global warming is real or not.]

In their constant whining about online shopping, these big retailers are simply proving what consumers already know, which is that they have been caught asleep on the job.

Blind Freddy saw this coming. Many smaller Australian retailers positioned themselves for online shopping a long time ago, and they are doing very well thank you.
Australian retailers who successfully sell on line are paying GST, and this is only fair: That tax is not in place to make life easier or harder for Australian businesses, it is there to cover the cost of infrastructure that makes their online trade possible. These costs include the existence and support of contract law, company law, telecommunication networks and other essential services.

The big 3 insist GST must be levied on overseas purchases less than $1,000 in order to level the playing field. They should grow up. If they can’t get their act together here, maybe they should follow their suppliers overseas and sell to us from there?

What they are really arguing for is equal outcomes and, for capitalists to ask for such a thing requires a lot of cheek. If their profits are down then the price system, the free market system, is working. It’s telling them to review the situation. What a reduction in profits does not mean is “you poor bastard, you are entitled to help from mummy, start crying”. It means show a little vision and entrepreneurship.

Changes to GST will not restore all of their business anyway, if only because consumers are spending less across the board.
The word for this is not ‘offshore’, the word is ‘recession’.

One of the things currently sending buyers to offshore websites is the high purchasing power of the Australian dollar. If the GST change is implemented and the dollar drops back to its former average, are the big 3 going to have a more than level playing field? How does that help the voters who are supposed to support this change?

The price of a dollar is also bruising many other businesses which won’t be helped by the extension of GST.

Every player in the tourist trade, for example, from the pilot who flies a plane to the proprietor who makes scones and tea in a dinky little small-town tearoom is suffering. These are people who do not have any way to gain more customers from extending the GST.

The big 3 do have the means to increase their share of customer spending, but they’ve been getting away with mediocrity for so long they don’t realise just how mediocre they have been. The rising dollar has given them a wake-up call, but they just keep hitting the snooze button while they wait for the government to bring them breakfast in bed.

Get up and get it yourself, I say. You’ve had it coming and now it’s here. Deal with it.


Microeconomics 101: The price a customer will pay for a widget depends on
  • how much the shopkeeper wants
  • how much other shopkeepers are asking for widgets
  • whether a widget needs a remote control, batteries, software or other stuff before it will work [thus adding to the total cost]
  • whether a widge-wot – a much cheaper version of a widget – will be just as good
  • whether the customer has money left over after paying their rent

The final and most important factor is something we’ll call Other.
It’s ALL the stuff that actually matters most, but which goes over the heads of price traders.
[To put it another way, if you can only compete on price the market is too crowded, and it’s time to jump ship.]

Here’s my top ten list of reasons for not shopping with any of the Big 3 – reasons which all come under the heading “Other”:
  1. can’t hear myself think for the loud music
  2. can’t get the help I need e.g. how to
  3. can’t find anyone to serve me at all
  4. sales staff don’t want to waste time with customers who don’t already know what they want
  5. too many encyclopaedia salesmen
  6. the perfume they have at the door to lure me in makes me feel physically ill
  7. lack of choices
  8. delivery promised but never delivered means I take a day off work and lose pay for nothing
  9. poor after sales service
  10. too few checkouts

There are more reasons, but I think you get the idea.

I like books, I especially like books which are not to everybody’s taste, and there’s absolutely nothing better than finding something interesting that’s been remaindered.
Sometimes, I want something out of print and so an e-book is the answer.
Readings outlets have an enormous range but are too far to travel so I shop online.
If I buy their e-books I can read them using Google Chrome, with no need to buy any special reader or software.
If I spend enough I don’t have to pay postage on hard copies.
If I email them with a query I hear back within a few business hours, and they don’t talk to me like the technological dinosaur that I am, they help me because they want me to succeed.

No, I don’t shop offshore.
Why would it be so hard for other retailers?


Clothes, I buy from op-shops. I can buy something for five or six dollars, go to a sewing repair shop for alterations, then get the garment cleaned – all for less than a new garment from one of the Big 3.
I don’t shop offshore for clothes, don’t support retailers exploiting third world sweatshops, and all the money I spend stays here.

I shop and bank online all the time, and 95% of the time this is onshore.
With the exception of perishables like milk, there is very little that can’t be bought online.

The last time I bought a PC online it arrived within 3 days, but played up. Within another 3 days a techie turned up at the promised time, replaced one part to fix the problem, and another 2 parts which others had complained about, and was on his way in 20 minutes.

Do I care if the Big 3 go broke? No. Their employees will survive because someone with more initiative will soon arrive to take over their share of the market.

I’ll stop sooking now. Hope the Big 3 do, and soon.


  1. While not necessarily the big three, although the perfume at the door puts me off, it is the music that drives me crazy. It seems especially bad in the large electronic retail chain owned by a large supermarket chain. I have come to expect it from small clothing stores who target the young market and so I avoid these, but people of all ages buy electronics.

  2. While I agree with you that the Big 3 need to stop whining and sort it out for themselves there are a couple of observations I would make.

    You said
    "There is no sliding scale that allows for governments to take a matching portion of profits or reward when they absorb a portion of a company’s risk."

    Which is technically correct but in fact it is much worse than that for the Big 3 (and others) the government takes a share of profits for no risk via company tax.

    The other issue that all governments face is the protection of their tax base which is being eroded by international web trade that avoids sales taxes. Here in NZ recently they were quoting an estimate of web based shopping of about $2.7b which would avoid about $400M of GST which is quite a lot in anyones terms.

    Bigger brains than mine are wrestling with this problem but what I do know is that this burden of taxation doesn't go away so it will mean other taxes will potentially need to go up if they don't solve the problem.

  3. Hi Big Dog,
    I’ve been sprung. I could hide behind space limitations but the truth is I’ve oversimplified cos my girlie brain can’t juggle too many parameters at once. Having let myself off the hook the cheat’s way, I’ll have a go!

    Firstly, I agree it is a problem trying to ensure we collect taxes due to us. I know a small population is a disadvantage for Australia – in New Zealand it must be a budget nightmare. But let’s say I spend a week in DisneyWorld, blowing my life savings eating sugar laden Mickey Mouse shaped junk. This is effectively an import expense that doesn’t get taxed here. In the absence of some tax deal with the States like we have for income tax, I would hope it balances out. The US gets the GST equivalent on their sales, we get it on the stuff we sell.

    Secondly, I think the point I was struggling to make is that these people are spending megabucks advertising a plea for special treatment. Yes, they are at a disadvantage while the dollar is high, but if we give them what they want now to level the playing field, when the dollar falls again they will have a greater competitive advantage than when they started. They are not altruistically hoping to increase government revenue, just quite reasonably using the WIIFM [What’s In It For Me?] approach.
    A quick and nasty search turned up some estimates which show individual tax income at 138,360 m, while company and similar tax income for government will be around 72,480 m. Companies and individuals both pay taxes, and individuals pay the lion’s share. In both cases there is no risk to the government.

    Any change to the GST rules will effectively be increasing the individual burden through an increase in the price of goods that remains regardless of the value of the dollar.

    A third, less directly related issue is going to depend on where, as individuals we sit on the line between L and R politically. Special treatment for businesses has a role to play in shaping the future, but sometimes this takes the form of blatant pork-barrelling. Some years ago, for example, a certain former PM hijacked a safe seat and gave 8 million to a company in his constituency, which propped up manufacturing jobs for 3 years. The company was in an industry which was already technologically obsolete and had no long-term prospects. Later, along comes a corporate raider with asset stripping on the agenda – acquired a piece of prime real estate and sold its industrial plant offshore for 2/5ths of not much at all. With no charge over these assets, the government wasn’t even absorbing risk it was simply forking out money to buy votes. A loan to help the original company make the shift to new technology might have been better for the factory workers who ultimately lost their jobs anyway.

    In general I think you might agree with me – a great deal of government policy is driven by knee jerk opportunism rather than any clear philosophy of how to run an economy. It might be more productive if we were more selective about who gets our support.

    Many tourism workers are also hurting, but they don’t have the opportunities to lift their game that the big 3 have.
    Having said all that, if they can’t stand the heat in the kitchen maybe the big 3 should just sell up and speculate on foreign currency instead – it’s cheap at the moment.

  4. Hi Andrew,
    Yes, the music can be like an invisible force field at the door. It took me a while, but I've finally realised if there was a way to talk above the noise in some of these places, I probably wouldn't understand what's being said anyway. Some assistants talk like valley-girls on speed.

  5. Oh, my neck has RSI from nodding so vigourously all the way through this fine expose (sorry, don't know how to insert the grave above the 'e' in comments) AND from your readers comments! So all that's left for me to say is the savings that consumers are making by their alternative purchasing choices are often still greater than the GST - so consumer behaviour is unlikely to change if GST is added anyhow!!

  6. Hi Red,
    From the comments, this post might not have been a sook so much as a movement!
    Just wish I had enough money to go crazy offshore NOW!

  7. I have serious doubts that your "girlie" brain has any trouble at all keeping up.

    You are right if trade was even things would work out, trouble is we are seeing a shift and a trade imbalance in retail spend, principally because most of what is for sale in Australia was not made there. This is not support for the big 3 just an observation.

    And again I agree the big 3 are undoubtedly working on the WIIFM principal, but I do need to challenge your throw away research on tax takes. First off, companies don't really pay tax they regarded it as a cost and it effects their investment decisions. If no company paid any tax you could argue that they would have more money to invest in other stuff. Provided you tax the dividends then any profits that made it outside the company would be taxed, which might be a better system.

    Having said that, there is a reason why your stats show individuals paying most of the tax, it is because individuals are taxed on their income and companies are taxed on their profits.
    Imagine a very simplified country with 15% tax on corporations and individuals, further there is only one company and it employs everyone. With company revenue of say $100 and wage costs of two thirds $67 that would give a profit of $33. Tax paid by the employees $10 tax paid by company $5 which is why your stats are the way they are, it does not show companies shirking their burden it is just the system in action.

    And I absolutely, fully, totally, 100% agree that we should be a dam sight more careful about the idiots we elect to govern us because in the end it is these boneheads that cause a lot of the trouble.

    Lets go with the Belgium model, 417 days and counting and no government, doesn't seem to be hurting them to much.

  8. Hi Big Dog,
    I take your point about the distribution of the tax burden. In all honesty, I never made the leap to allowing for reinvestment [an especially appealing option when the alternative is to distribute profits to proprietors - esp in smaller Pty Ltd companies - in the form of large taxable incomes]. So we are now on the same page, with the rider that not all business investments will provide the best results for other taxpayers.

    As for Belgium, you've just told me something interesting. I had no idea. But yes, I think your observation about the consequences is close to the mark. Someone once said to me that the only reason Italy was able to develop after WWII was because there were so many changes of government, the public service was free to 'get on with it'. And while I don't agree with using the public service as a substitute for creating real jobs, I wonder if we have taken privatisation too far - if there would be less government waste if the public service was still reasonably healthy.
    Maybe it can only start with a vision, from which we work backwards to clarify the how...

  9. Hello again Big Dog,
    It has taken me all day but I think two pennies have finally dropped, firstly about the fact that what these people are retailing is made offshore in any case, hence the imbalance in retail spend, and secondly about the distribution of tax burden.
    A plodding thinker but sometimes I make it. Thanks for the discussion, I enjoy aha! moments.