In Australia, one of the major secular trends that is happening is the growth of online shopping. More and more consumers are discovering the joys of bargain hunting through the Internet, thereby bypassing the traditional bricks-and-mortars retailers in the local shopping malls.
One of the pet complaints by Australian retail businesses is that they are unfairly burdened by the need to pay GST. Australian consumers avoid GST by buying from overseas web site. Worse still, the strong Australian dollar makes overseas products even cheaper.
So, is GST really the root of the problem for Australian retailers who find themselves increasingly unable to compete with foreign web sites?
Well, let’s hold a thought experiment. Imagine that all the goods at your local retailers are reduced by 10% (which is the GST amount). Will that make your local retailers more competitive than their overseas online competitors? Will that make you switch from buying from overseas web site to your local retailer? If the answer is “No,” then it means that we have a structural problem in Australia.
For one, consumers are complaining that the range of products sold by our local retailers are too small. In other words, they can’t get what they want locally and therefore, have to shop in foreign web sites to get them.
More importantly, many goods sold by foreign web sites are very much cheaper than identical ones sold at your local shopping mall, even after you include shipping costs. For example, when you compare the prices at your local Dymocks bookshop and Book Depository, you will find that the latter is much cheaper (by the way, if you shop at Book Depository through our link, you will help us and help yourself financially). That means that even if the government can somehow enforce GST on foreign online retailers, our local retailers will still bleed.
So, if you accept the theory that this is a structural problem, what could it be? Recently, we found this very interesting comment that may possibly answer this question,
How can local retailers compete with overseas retailers when their operating cost here are significantly higher than overseas. The biggest single cost, after labour, is commercial and retail rents, which are at least 50% higher here than overseas … this is reflected in the price of the goods.
The enquiry should centre around why retail rents have skyrocketed in Australia, and why the institutional property owners force retailers and small business to pay extremely high rents. Try starting a small business here when you have to pay $200- $400 per sq metre in suburban Sydney, yet in the US, the same premises rent out for $50 – $150 per sq metre.
The Government is complicit in that it has a vested interest for property values to be as high as possible to ensure the land tax revenues keep coming in … Australians are being taxes artificially at all levels in the community .. from the goods they buy to the cost of electricity .. behind all of these costs are hidden government fees.
So, this is another example of unintended consequences of the property bubble in Australia.