The following letter was sent to State Treasurers a few weeks ago:

Lost GST revenue to state and territory governments

Dear,

Like state and territory governments, Australian retailers have been feeling a revenue squeeze.

Many of the issues surrounding the slowing revenue growth for the retail sector revolve around confidence, competitiveness through the cost of doing business in Australia and regulatory burden.

Current GST arrangements see a competitive advantage given to overseas traders, disadvantaging Australian based online and Australian based traditional retailers. The non collection of GST for products worth under $1000 not only impacts on Australian retailers, it also impacts significantly on lost revenue to state and territory governments.

The Federal Government Greiner/Brumby/Carter GST Distribution Review interim report highlighted issues surrounding lost GST revenue. The recent Productivity Commission report into the retail sector and the current Low Value Parcel Taskforce interim report also highlight lost GST revenue to state and territory governments.

Using the GST Distribution Review interim report as a guide and Treasury sourced figures for 2011 the Australian Retailers Association (ARA) has indicated lost revenue as a percentage of population to each state and territory.

Revenue lost to states and territories for both the goods ($630 million) and services ($1.1 billion) is currently running at $1.73 billion dollars for 2011.[i]

The Productivity Commission reported that total online sales are predicted to grow ten to fifteen per cent per year for the next three years, with market estimates suggesting that overseas internet sales currently represent two per cent of Australian retail spending, or $4.2 billion.[ii]

Given the horizontal fiscal equalisation mechanism is currently under review we have based our estimates of lost revenue as a percentage of population in each state and territory;

NSW $560 million

VIC $429 million

QLD $349 million

WA $178 million

SA $128 million

TAS $39 million

ACT $27.7 million

NT $17.3 million

The Federal Government's Low Value Parcel Processing Taskforce is due to make its final report to the Government in July on how to improve efficiencies in GST collection to allow the collection threshold to be lowered.

In an environment where GST revenue growth has been diminishing and offshore activity is being encouraged by Australia's inability to apply tax neutrality principles to overseas businesses, the ARA, along with a number of other industry groups, believe it is imperative for government revenue and business tax neutrality reasons to have this issue resolved urgently.

Australia currently has one of the highest GST collection thresholds in the world. Most of Australia's major competitors maintain a collection threshold figure at less than AUD $100 with many well below that figure.

During discussions with stakeholders the ARA has been advised that a number of other international jurisdictions have their import thresholds under review. Some who have recently lowered their thresholds, such as the UK (now £15), are looking for greater collection efficiencies to lower their threshold even further at a time where Governments under budgetary stress are keen to broaden their tax bases.

ARA and the organisations who are working on this issue have identified additional lost jobs, investment, duty collection and resulting government revenue loss through tax treatment bias towards international offshore traders as significant issues for state and territory governments.

The organisations working with ARA are;

Australian Booksellers Association

Bicycle Industries Australia

Photo Marketing Association

Australian Music Association

Photo Imaging Council of Australia

Retail Cycle Traders Australia (Inc)

Australian Toy Association

Franchise Council of Australia

As noted earlier ARA is conscious of the GST Distribution Review which highlights the threats to the revenue base of the GST through the threshold issue:

The Panel believes the current weakness in GST revenue may have implications for achieving reform-simply put, reform would be easier in a strongly revenue positive environment. In this vein, the Panel notes recent Productivity Commission and Commonwealth Treasury estimates of annual GST revenue forgone due to the exemptions that apply to imports of intangibles and packages below a low value threshold of $1,000. Any effective policy or compliance action to capture some of this revenue would bolster the GST revenue outlook.

The 2011 Tax Expenditure Statement produced by Commonwealth Treasury estimated, albeit with low reliability, that revenue forgone in 2011-12 would be $630 million in relation to the low value threshold and $1.1 billion on imports of certain services and intangibles.

The ARA is asking for your support in assisting the Federal Government to rectify this revenue and tax neutrality issue affecting the retail sector along with state and territory government service delivery.

Yours faithfully,

Russell Zimmerman

Executive Director

Australian Retailers Association