The retailers respond

Retail NZ's Greg Harford replies to my piece on maintaining the GST-threshold:

While Government must balance potential revenue with the costs of collection when considering the GST loophole, the negative effects on local retailers are an important part of the equation. Difficult conditions for local businesses have flow-on effects that impact the whole economy including reduced employment (which results in reduced consumer spending), lower tax revenue and empty store fronts in our town centres.

GST is not a new tax. Introduced in 1986, New Zealand’s simple and broad-based GST policy was the envy of Australia and the United Kingdom. It was, until the advent of e-tailing, an easy to use and fair system that applied to all good and services consumed by New Zealanders.

The internet means that consumers are now able to easily avoid GST by purchasing from offshore retailers online, and they are doing so in droves. Nielsen estimate New Zealanders spent $1.3 billion on purchases from offshore retailers in 2013 and this is only expected to grow.

The confusing variable de minimis level for GST and duty on offshore online purchases further complicates our otherwise simple consumption tax system.

He goes on to make some reasonable points about Retail NZ's role in informing consumers about the benefits of buying locally. That's all fine; I'm happy with whatever choice consumers want to make about paying more and having all the local service or buying from overseas and potentially having warranty problems.

But I'll disagree that negative effects on local retailers are that substantial a consideration. Really, we need to be minimising deadweight costs here. The absence of GST on imports means some things get imported that, in an ideal world, would be purchased domestically. This distortion is inefficient relative to a blackboard ideal. But some inefficiencies are best left alone - where the cost of mitigating the failure exceeds the cost of the deadweight loss, it's best not to mess with it.

I've yet to see a mechanism for collecting GST on low value imports that does not induce more distortion in favour of NZ retail than the current system applies against NZ retail. If somebody comes up with one, fine. But just insisting that GST be applied without specifying a mechanism for doing it smacks of protectionism, not playing-field levelling.

Rob Salmond also took issue with my piece, though I'm not convinced he read more than the bits I'd excerpted for Offsetting. The Standard thought Salmond worthy of reposting. I left the comment below there for Salmond.

Hi Rob,

If you check the full op-ed piece, you'll note that my main argument is about the hassle cost that GST collection would impose on NZ consumers. I argue that the GST difference is trivial relative to the magnitude of savings from shopping online, and that retailers looking to blame the GST are missing the bigger problem of economies of scale available abroad.

You'll also find that I support applying GST on imports IF there's a mechanism that would impose no hassle costs on consumers and that wouldn't just eat up all the revenue in transactions costs for the government.

I'm not sure why you characterise the argument around extra customs fees as slippery slope. The Customs fact-sheet dated November 2014 says that they collect those two charges whenever they collect GST. I hardly thought it unreasonable to expect that they would continue with that practice. It's always possible that the government could tell them "And, don't charge any fees for collecting $15 on $100 purchase", but that just shifts the collection cost to the broader public, and it wouldn't be trivial. If the existing fees are cost-recovery per transaction, think a bit about how much the Customs budget will have to hike to cover $37 in real costs per processed transaction if they have to process all of them and are barred from recovering the cost. We can ban customs from charging for it, but we can't wave a wand to make the collection costless. We just change who pays.

But, again, that isn't the crux of it. Rather, it's the differential hassle cost imposed on online shoppers purchasing from abroad when they have to jump through additional GST hurdles.

Hey, if you come up with some actual real-world mechanism that works, that's great. I expect that if any such mechanism existed, IRD would already have done it. But you could be an entrepreneur in this space.

The other main point is that NZ retailers may be deluding themselves by laying blame on GST when the price difference between NZ retail and shipped-to-my-door-from-abroad is often 33%-50%. Rather, it's economies of scale from abroad that are the main source of the cost differences.

Anyway, you might check back on the full piece I'd written and linked. I say pretty explicitly that I'd support GST on imports were there a way of doing it without effectively just putting up a big hassle-cost non-tariff barrier.

I'm curious about your source on Amazon's willingness to collect foreign taxes. If it's just that Amazon.co.uk collects VAT on goods shipped from the UK to other parts of the EU, I'm really not sure that's the same thing as Amazon.com agreeing to collect NZ's GST.

Finally, I'll note that where the NZ market is often pretty small and cannot sustain that much competition, it's fringe competition from online imports that help to constrain domestic prices. Make low-value imports a hassle to parallel import, and I'll bet you'll start seeing hikes in the local prices of those products.