GST on overseas online sales: for fuck’s sake, do the maths!

New South Wales Treasurer Mike Baird has proposed lowering the GST-free threshold for online purchases from overseas from the current $1,000 to $30. This, he says, will raise hundreds of millions of dollars in additional GST revenue. He claims this could pave the way for abolishing stamp duty on housing and other state taxes.

Bullshit. And more bullshit.

The Productivity Commission’s inquiry into the Australian retail industry canvassed this option last year. It estimated that overseas online sales accounted for about 2% of all retail, around $4.2 billion per year, growing at 10-15% annually. More than three quarters of transactions (77%) were less than $100, the report said. However, it added:

… the Government should not proceed to lower the [threshold]  unless it can be demonstrated that it is cost effective to do so. The cost of raising the additional revenue should be at least broadly comparable to the cost of raising other taxes…

Who’s picking up the tab? Photo: Sarah Williams via stock.xchng

In other words, if the cost of collecting the tax took up a large chunk of the revenue raised, it wouldn’t be worth the government’s while to collect the tax. The Productivity Commission estimated that if the threshold were set at $100, it would cost about $15 per item to collect GST.

If true, this would have the government losing money on collecting GST on purchases of between $100 and $150. And if the threshold were lowered to $30, the government would pay $15 per item to collect as little as $3 in tax.

The Productivity Commission yesterday released a draft report restating that if the tax threshold were to be lowered, the government would need to find a much more efficient way of collecting the tax. Assistant Treasurer Bill Shorten said the way things are currently, it would cost the economy $1.6 billion to recover $500 million in tax. It’s just not worth it.

Of course, it is possible Treasurer Baird thinks this isn’t important because the federal government would pay the costs of collecting the tax but the states would still get the revenue. Don’t think it works that way, Mike.

But even in a magical fantasy land where the government could collect GST on all online retail transactions at zero cost, this would only raise $420 million in annual revenue, increasing at about 10%-15% each year. Of which 30.7% would go to New South Wales and the rest to other states. So NSW would get about $130 million a year.

$130 million a year, theoretical maximum. In reality, much less, maybe nothing.

How much does New South Wales currently collect in property stamp duty? According to the most recent state budget, $4.5 billion this financial year, estimated to grow to $5.8 billion in 2015-16, or about 10% per year.

OK, so the theoretical maximum amount of revenue raised from charging GST on overseas online purchases would offset approximately 3% of the revenue foregone from abolishing stamp duty.

Yeah, like that’s going to happen.

As we would expect, no one in the media has called bullshit. The Herald‘s Sean Nichols does an admirable job of laying out the figures, but fails to connect the dots. The ABC (linked in the first paragraph) sticks to he-said-she-said reporting. The Daily Telegraph hadn’t reported it at all, at time of writing, go figure.

So why did Baird bother saying it? Because he wanted to get his name in the newspapers and knew nobody would ask too many questions.

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