Tuesday, 7 July 2015

GST as non-tariff barrier?

Shoppers are sceptical that taxing low-value imports is a hot idea.

The NBR reports on a new Horizon poll. In this first set, respondents pick all answers they think should apply.

I'd have gone with the plurality response here (plurality rather than majority as respondents can choose more than one answer, and sum of answers is around 120%).

In the absence of a mechanism that would cheaply and efficiently apply GST at the border, we should likely stick with the status quo. If we can set up a system that works through the shippers to apply GST to imported goods at minimum cost to importing consumers, that could make sense - subject to feasibility and cost-benefit assessment.

I'm a bit curious about why second-hand items from abroad should be exempt from GST. The usual argument for second-hand goods' exemption is that tax was paid on them when they were new, but that wouldn't apply to imported used goods.

Respondents were then asked which policies they'd prefer if the tax difference resulted in closed shops or job losses, support for the status quo dropped:

The point of applying GST at the border isn't to protect domestic jobs, it's to avoid creating a distortion in favour of direct-to-consumer imports and to avoid erosion of the tax base. 

On the first count, if collecting GST at the border introduces hassle costs for consumers equivalent to or greater than the 15% GST, then it's a distortionary non-tariff barrier; this isn't hard for low-value goods. 

The second one is harder. Suppose that NZ retail is hopelessly inefficient and that everybody shifts to purchasing online from overseas for anything other than groceries because they can save 30-50% pretty easily. The effects on the tax base could be pretty substantial. You then have to weigh the distortions caused by GST on low-value imports against the deadweight costs of other forms of domestic taxation, and I have no strong priors which way that would come out. But the relevant consideration is deadweight cost of a lower GST threshold against the deadweight cost of higher income taxes; we might also worry about the effects of reduced competition in the tradeables sector.

Retail NZ's Greg Hartford didn't seem to like the respondents' urging that retail become more competitive:
“Retailers are working really hard to make sure they can deliver their products. The reality is that New Zealand is a small market and retailers are very small compared to international companies. We just don’t have the scale to be able to negotiate discounts the way Amazon can, for example,” he says.
If that's true, and if consumers can more effectively buy directly from overseas, then domestic retail should shrink.

It's worth keeping an eye on GST proposals that come up. There are some that might not be terrible; others would impose unnecessarily high costs on consumers.

Get your NBR subscription and read the whole thing. Total online retail sales are now three times what they were in 2010, and the international component has risen from about 35% to about 45%. It would be surprising if there weren't more solid proposals coming out around GST on low-value imports in the next few years.


  1. NZ retailers don't appear to have grasped the idea that online sales can work both ways, i.e., if NZers can buy from offshore, then folk offshore can just as readily buy from NZ. "New Zealand is a small market"; the online world is now. Quit complaining and demanding protection; start grasping the opportunity instead.

  2. Good for the local retailers selling local(ish) stuff; tougher for those importing then on-selling.

  3. I thought that Seamus' suggestion was a good one.

    The hassle cost of any dealings at all with NZ Customs is enormous. And you pay a processing fee on top of the GST, not just the GST itself. The paperwork and general messing around is out of all proportion to the transaction itself - after recently importing a few things for a variety of reasons we're now deciding to never do that again if we can avoid it.