BILL SHORTEN:
Welcome everyone this afternoon to Moonee Ponds, joining me here today for the release of the Productivity Commission draft report into the future of the retail industry is Minister for Small Business, Nick Sherry.
The Gillard Government believes the retail sector is a vital part of Australia's economy and it is a major employer. That is why we stood by the retail sector during the worst times of the Global Financial Crisis in order to sustain retail industry.
It is why we commissioned this review by the Productivity Commission, late last year, into the issues surrounding the future of retail, including, but not limited to, whether or not levying GST on imported goods should be reduced from the current $1000.
The Government is here to help the retail sector. We believe the challenges to the retail sector are national challenges but also an opportunity. We need to be crystal clear here though. We think for the retail sector to flourish and continue to grow in Australia, the challenges are not just those for Government to resolve.
We think today's draft report of the Productivity Commission highlights that the Australian retail sector needs to continue to innovate and adapt to changing demands and consumers and the global environment in which our economy is situated. There is a wide landscape of issues put forward by the Productivity Commission in this report, it is a draft report. The Government won't be ruling in or ruling out any of the draft propositions yet. There is going to be further public consultation and opportunity for discussion before the final report is released towards the end of this year.
However, the Gillard Government won't be sitting on its hands in the meantime. In the most recent budget we provided more resources to the Australian Bureau of Statistics to improve the accuracy of data of important matters, including the rise in purchasing online from both domestically and overseas sources. We will also be taking advice from Government agencies such as Australia Post and Customs.
The report does identify that, if we were to abolish the GST exemption on goods purchased from overseas, the Productivity Commission says this would cost the Australian taxpayer $1.6 billion, to collect the tax that would raise approximately $500 million. So, for every dollar of tax raised, at this stage with the current technology in place, it would cost the taxpayer three times as much to collect GST on items below $1000. The Productivity Commission has also made clear in its report that it says further work should be done to see if the cost of collecting could be reduced. We will be liaising with Government agencies to see if this is possible.
What the Productivity Commission identifies is that the reason why shoppers are going online, be it domestically or overseas, price is only one of the considerations. Many of the price differentials are far greater, so the savings you make from shopping online are far greater than the cost of putting the 10 per cent GST back on the item. In addition, what has been identified is that Australian consumers are looking for better service, a better range of products and price differentials that cannot simply be explained by a lack of GST on these items. What the Productivity Commission has also identified, is important bedtime reading for local government and state government, it believes that in some jurisdiction shop trading hours are a challenge and that zoning restrictions preventing greater competition among shopping outlets is a disincentive in terms of the competition for the retail sector in Australia. Everyone recognises the high dollar causes difficulties and puts pressure on retailers.
The Productivity Commission draft concludes that the retail sector itself needs to adapt and change. It is no longer good enough for bricks and mortar department stores to say "here we are – you the customer come to us." I think the most significant conclusion in this Productivity Commission draft report is that the Australian retail industry has a bright future and it will need to continue to innovate and change. It will have to continue to go to the customer and not simply expect the customer to come to them.
I am now happy to take some questions.
JOURNALIST:
<inaudible>
SHORTEN:
Well the Productivity Commission draft report identified a range of areas, one of which includes state regulation. It appears the Productivity Commission identified three sources of tension and difficulty for the retail industry. One is the high costs of retail tenancies. This is a proposition that smaller businesses are being squeezed by retail landlords, by larger operations and that price of retails tenancies is giving small business a very difficult time.
The second issue that has been identified in regards to State regulation is the issue of zoning laws. It is clear there are new entrants to the retail markets who would like to expand their opportunities to create competition for customers. But the difficulty is in getting zoning laws changed, so new supermarkets can open up in competition to some of the large existing chains, but the barriers to entry are very high.
The third issue identified is that in some jurisdictions, in particular Western Australia and to some extent South Australia, shop trading hours are an issue. The Productivity Commission said that was a matter for states to consider. I would also make the point in relation to shop hours in particular jurisdictions, Coles Online and the internet domestic service providers provide options to get around shop trading hours. We believe these are matters for the states.
Large retails are being put on notice by this draft report. Some of the prices they are setting are very high and the profits they are seeking are very high. They shouldn't be surprised if consumers are voting with their feet, to use the Internet as their capacity to see what the real price competition out there in the market is. There are a lot of bright spots here; there are a lot of nimble businesses expanding their online business and looking at new and innovative ways to attract their customers.
JOURNALIST:
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SHORTEN:
What the Productivity Commission says is that there is a process available through the Fair Work Act to reveal if there are any challenges to the labour market. We should be very clear here: there is a challenge in productivity in the way businesses are structured. The idea that for a shop assistant on $15 an hour, that reducing those peoples wages will lead to a new golden age of Australian retail, are short sighted. The challenge here is not for retailers to force down the wages of young students and people working part time. The challenge here is to bring back the customer by good service, by range of product and by not taking unrealistic profit at the expense of the shopper, who now has the capacity to cut the middleman out to get a better deal for themselves.
NICK SHERRY:
We do know that of approximately two million small businesses in Australia, nine out 10 are connected to the Internet, however only about three and a half out of 10 use the Internet significantly. Whether it is online selling, whether it is for the structure of its supply chain. The majority of small businesses are not using the Internet as effectively as they could. That is a great challenge for many small businesses. The challenge is to become a two way street and not a one way street. To use the Internet to make sure they have trade coming into their business, not just physically walking into their business. The rise of the Internet for small business is inevitable, rapid and exponential.
JOURNALIST:
<inaudible>
SHORTEN:
Let's be clear on the GST issue. Whether or not the exemption, which currently means purchased items online from overseas up to a $1000 don't pay GST... The Productivity Commission says in its draft report that it supports the principle of competitive tax neutrality, or in plain English, it says everyone should pay the same tax. The Productivity Commission says that is the right tax principle to have. However, what it also says at the moment is that tax payers would have to spend an estimated $1.6 billion to collect half a billion dollars. There is no way you can sell that to the Australian people even though we do support, as a general principle, the general idea of tax neutrality, that the tax should be the same on all items.
The idea that tax payers, in order to support that principle, would spend three times more to obtain the tax – that's just plain crazy. What the PC does say in its draft however is that other jurisdictions, when they were putting in these exemptions and when they were dealing with the internet eight to 10 years ago, they created a more seamless system where it is easier to asses and collect the value of items. So you wouldn't be spending three times as much as the tax collected. We will ask Australia Post, Customs and others to see if there would be a cheaper way to collect the tax.
If we were to abolish the GST exemptions tomorrow, the Australia taxpayer would be up for a bill three times as much for the tax we are collecting. That is crazy. The Productivity Commission in its draft recommendation has said, 'we do support the idea that everyone should be on a level playing field'.
They want us to check out if it is possible to reduce the collection costs. It is not currently feasible; that is what the independent experts have said. We will do that investigation after the final report of recommendations. That process will take several years. What we say to Australian retail in the meantime is that this Government has kept its word and had an honest look at this issue, we have hard numbers.
What we say to Australian retail is that you can't just take profits yourself and blame all the losses on the Government and the taxpayers of Australia. This should be a wake-up call, that one - the internet is not the enemy; the internet is an opportunity.
Two – If customers aren't shopping in your shops you can't blame the customers. People are looking at price bargains where the differentials are 30 to 40 per cent less on the internet then it is in the shop then you have to have a look at how you are doing your own business rather than expecting taxpayers to foot the bill when you are taking high profits.
JOURNALIST:
<inaudible>
SHORTEN:
Let's be clear, the PC doesn't say labour costs are the main driver of problems for the Australian retail sector. It is very clear the solution and the way forward for the retail sector doesn't involve cutting the basic wages for low-paid people. That has never been the Australian way. What it does make clear throughout the report is that State governments have got a challenge to lift here. It shouldn't be as hard as it is for Aldi or Costco to get zoning permission to set-up in competition to other outlets. They are making it clear that retail tenancy... that small business is not being done over by the internet, they being challenged by high retail property rates.
The business model of retail in Australia has been very largely a bricks and mortar driven operation. The internet isn't about to drain out bricks and mortar. Of the entire retail expenditure of some $250 billion in Australia, six per cent is going on the Internet. Of that six per cent, two of every three dollars is going domestically. The overseas Internet challenge, whilst it is growing for Australian retailers, it is sardine in the issues compared to some of the other challenges of retail in Australia.
Many of the large Australian retailers tried the Internet a few years ago and got their fingers burnt and some of the most famous household Australian names said the Internet would never work. Well, they are wrong and I think this report lays out a lot of thinking for government, state government, local councils and for retail generally. We will work with retail because it is so important.
JOURNALIST:
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SHORTEN:
The Federal Government commissioned a report by the Productivity Commission, we were ahead of the curve. Throughout the Global Financial Crisis it was our stimulus package, opposed by the Liberals, which literally saw tens of millions of dollars flow through retailer tills to help retail out. That is taking responsibility.
We don't control state planning laws, we don't control retail tenancy laws and we don't run the businesses. Sometimes in Australia there can be a tendency for some Australian businesses, when things are going bad to say that this is a taxpayer challenge and when things are going good put it down to their managerial genius.
What we would say is that retail needs to understand that the world is changing and that simply trying to turn back the tide and ignore the Internet is foolish business practice.
JOURNALIST:
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SHORTEN:
I think if you look at the expansion of domestic online retail, it is growing 10 to 15 per cent per year. We are not shying away from the principle of competitive tax neutrality. We are not shying aware from investigating if it can be cheaper to spend less than $1.6 billion to collect $500 million in tax. But I live in the real world. The Gillard Government knows that if we go to taxpayers and say 'hey to help out big retailers we are going to lift the price of items you buy online overseas by 15 per cent', and therefore we don't see big retail change the way it does its business, no consumer is going to thank us. And just the sheer mathematics, according to the Productivity Commission, why do you spend $1.6 billion to collect half a billion dollars?
JOURNALIST:
<inaudible>
SHORTEN:
Well, some of the people you've said, unless the Government slaps on a tax on consumers tomorrow, its unpatriotic. Some of these people in the 1980s were the first on the plane to China, to buy those goods from China rather than buys goods manufactured in Australia. Now what's happened is that some Australian customers have bypassed them and can go online and do the same things they were doing in the 80s. Now they have found the flag and wrapped themselves in the mantle of patriotism.
We do support the principle of competitive tax neutrality. What we also understand is that when you've got to spend more money to collect the tax then what the tax is worth, well that doesn't make sense and that lets down Australian taxpayers.
The reality is that most people in Australia still shop through bricks and mortar. Australian retail does have a good future. What we are saying is that you can't just ignore the Internet and you can't ignore that if the customers are looking for better range, better price, better service that is a challenge for the boards of those companies.
JOURNALIST:
<inaudible>
SHORTEN:
The great thing about shopping is that it is a bit like voting, everybody does it so everybody has an opinion about how it should be run. What will guide us is in all our responses is what is the best deal for the consumer. If the consumer benefits we will go ahead with that. At the moment we have a draft report that suggests that says it costs $1.6 billion to collect half a billion dollars. We think there are opportunities here for State government and retailers, along with Federal Government, to work with retail so we can adapt and innovate for the future.
Thank you.