BRADBURY:
Today I am releasing the Government's interim response to the Low Value Parcel Processing Taskforce report. The Government commissioned this report earlier this year. It follows on the back of the Productivity Commission's inquiry into the retail sector. The Taskforce, over a period of six months, considered ways in which parcel processing could be streamlined. The Government released the Taskforce report back in September, and now I am providing the Government's interim response to the Taskforce report.
I note that there have been a number of voices in the debate in recent times that have been calling for an immediate reduction in the threshold for low value items, from $1,000. Can I be clear that the Government rejects these calls for an immediate reduction in the GST threshold on low value items. In doing so, the Government has decided to undertake some business cases and possible implementation plans, and in preparing these plans we are acting in accordance with the recommendations of the Taskforce report.
There are a number of important principles that have guided the Government's approach in this matter. First, we've been driven by considerations of competitive tax neutrality. We've been focussed on the cost-effectiveness of any reform. And thirdly, we've taken into account the impacts and the potential disruption of any reform in relation to the processing of parcels at our borders.
On the question of competitive tax neutrality, the Government does find compelling the point made by the Productivity Commission that there are strong in-principle grounds for objecting to the unfairness of an arrangement that leaves local retailers at a disadvantage to those that are providing their goods and services from offshore. That is a consideration that the Government has considered and we accept and acknowledge that there is a legitimate question of tax neutrality at stake in this debate. In considering the question of tax neutrality, we have also been very much guided by the other considerations that I have also set out, in particular, the issue of cost-effectiveness. The Productivity Commission had made the point that it would appear as though the costs of collecting revenue would exceed any potential revenue that might be collected with our arrangements at the border and the way in which we process parcels remaining as they are at present.
The third point we've also considered has been in relation to the possible consequences and possible disruption that could lead from taking any step towards a lowering of the threshold at this point in time. I think it's important to recognise that to act suddenly in lowering the threshold without making significant investments in the way in which we process parcels, both through Customs and Australia Post, we face the prospect of having serious disruption to our parcel processing network. In fact, I think it would be fair to say that without significant investment and reform of the way in which we process parcels, there could be chaos at our borders, with a massive increase in the number of parcels that would need to be processed by Customs and Australia Post. To underline this point, it's worth noting that at present, in the international mail stream, around 20,000 items are processed above the GST threshold of $1,000. If the threshold were to be immediately lowered to $500, around 1.23 million parcels would have to be processed above the threshold. This is a considerable increase, in fact an exponential increase in the number of parcels that would need to be processed, and with that comes some serious questions about the capability of Customs and Australia Post to immediately respond to the processing task that that would generate.
I'd also make the point that there are some voices out there in the debate suggesting that the threshold could be lowered to zero. To lower the threshold to zero would mean somewhere in the order of 40 million parcels would need to be processed for GST above the threshold, or without a threshold, and that of course poses a considerable challenge to Customs and Australia Post being able to manage these issues.
Can I say that in considering these three principles, we have also taken into account the concerns of consumers. We recognise that consumers are embracing online retail, but having said that, it is worth providing some perspective about the extent to which online retail forms a part of the overall retail picture. In Australia at present, around six per cent of retail sales are online. Of that six per cent, around three-quarters currently relate to Australian online retail as opposed to retail sold from offshore. As the Productivity Commission indicated, whilst this is a challenge, and in particular in some sectors of the retail sector, this is by no means the decisive question that confronts and challenges the retail sector when we consider the question of international competitiveness that many of our retailers are facing at the moment. There has been considerable structural change in the retail sector, and it's in the context of that change that we think that a bright future exists for retail, but exists where there is a retail sector prepared to innovate and take advantage of those opportunities. We have seen from our retailers in recent times, many of them grappling with the challenges of online retail and doing so well that we see in recent figures that Australian online retail is now growing at a faster rate than offshore online retail. The success of retail in the future in large part will depend upon the ability of retailers to confront this challenge, to take advantage of the opportunities that it presents and we're already seeing encouraging signs that they're up to the task.
Before I stop and hand it over for some questions, I'd like to make a few remarks in relation to the Reserve Bank's meeting tomorrow. Whilst I repeat the Government's commitment to preserving and maintaining the independence of the Reserve Bank and obviously the Reserve Bank will take its decisions as it sees fit, but I would make the observation that as a result of the responsible economic management of our Government in charting a pathway back to a surplus Budget, we have given the Reserve Bank the room it needs to cut interest rates. We've seen the equivalent of six interest rate cuts over the last year and that has delivered significant relief to homeowners all around the country. For example, in Western Sydney, a family with a mortgage of $300,000 is now paying $4,500 a year less in interest repayments than they were when our Government came to office. We think it's important that we manage the economy and we do so in the best interests of working people. That's why here in Australia, unlike most countries in the world, we continue to have low inflation, low interest rates, low unemployment, strong growth and a solid pipeline of investment, but we want to make sure that not only are we managing the economy responsibly but we're doing it in a way that helps prepare us for the challenges of the future. We know that our future prospects are by no means assured and that's why we are investing in our nation's future.
JOURNALIST:
How long do you think it's going to take to get a more efficient, cost-effective system of checking the goods and therefore be able to lower the threshold for the GST?
BRADBURY:
Well, in terms of our response and requiring the preparation of business cases and implementation plans, we expect that this process will be reporting back to Government sometime in the second half of next year. This is a very complicated process and I would just underline the point of how complex this is by pointing to the significant number of parcels that would have to be processed, the increased number of parcels if there were to be a reduction in the threshold. I saw some reports recently that it would be an easy proposition to reduce the threshold from $1,000 to $500 and that that is something that could be done immediately. As I stated earlier, to simply reduce the threshold from $1,000 to $500 would mean instead of processing 20,000 parcels every year, we would now be expecting Customs and Australia Post to process 1.23 million parcels every year. That would present a considerable challenge to Customs and Australia Post, and we think it would be irresponsible for Government to make a rash decision to reduce the threshold without working through what investments and what changes and what reforms to the processing of parcels needs to be undertaken before we could go down that path.
JOURNALIST:
Your tone very much is that there will be a lowering of the threshold at some time down the track?
BRADBURY:
We are rejecting calls for an immediate reduction in the threshold but we do accept that there is a strong case in the interests of fairness and competitive tax neutrality that this issue be dealt with. But it cannot and should not be dealt with where the cost-effectiveness does not add up and we should not compromise the interests of an efficient and internationally-competitive customs processing network. These are the challenges that we face; at this stage there is not enough evidence to suggest that all of those objectives can be met by moving to reduce the threshold. We are determined to work through these issues, to properly cost the business case, to cost potential implementation plans so that we can determine what the true costs of making those changes would be so that a proper assessment can be undertaken to ensure that all of those objectives are met.
JOURNALIST:
Assistant Treasurer, you are saying [inaudible] cost-effectiveness, but the GST Distribution Panel found that there may be cheaper ways of collecting it than at the border, so are you going to look into alternatives, such as putting the impost on offshore retailers as the panel has recommended?
BRADBURY:
Can I preface my comments by saying I've made a number of comments publicly recently in relation to the need to ensure that our tax system is in keeping with the changing demands and changing nature of the global marketplace. I think this is an example that will require some further consideration as part of processes that I've already announced. Can I say in relation to the specific model that has been proposed by some that -
JOURNALIST:
By the GST Distribution Panel you mean?
BRADBURY:
There are some voices in the debate that suggest that one way that Government could deal with this issue is by legislating to impose the GST on offshore suppliers. I'd make the obvious point that the reason why we don't do that at the moment is that we do not have jurisdictional capacity to enforce those laws if offshore suppliers, which I think you should assume they will, decide not to voluntarily comply. But I can make the point that, in the absence of any obvious enforcement mechanism, those that advocate simply imposing the GST and seeking to collect that from offshore suppliers, they also rely upon other mechanisms that might assist in the collection of the tax and to name just a few examples of these, we've seen such examples as one person calling for the need for us to ensure we slow down the processing of parcels where GST has not been voluntarily collected by the supplier. We've seen instances, such as in the GST Distribution Review, where there are suggestions that you might impose particular charges or confiscate goods in order to impose penalties on consumers where suppliers have not collected that GST and there are a range of other options that have been suggested. Can I say that we will not compromise consumer welfare in order to achieve tax neutrality. And to be absolutely clear about this, we do not want to make consumers collateral damage in our efforts to ensure a fair and efficient tax system. The proposals brought forward by those that would seek to have this silver bullet as it were simply ignore the lack of capacity we have to enforce laws and the obvious detriment that would need to be inflicted upon consumers in order to make such a system workable. We don't accept that.
JOURNALIST:
(Inaudible)
BRADBURY:
The Taskforce in fact does suggest that this is something that should be considered as part of a package of measures to address the low value question. We will certainly consider these along with a range of other measures that would need to be complimentary to any future decisions around a lowering of the threshold. But let's be clear: those that might be suggesting that this is a quick fix, or something that can be done overnight with a waving of the magic wand, they either haven't read the Taskforce report or they are misleading people about how difficult, ultimately, this will be.
JOURNALIST:
Do you think the GST threshold is one of the main reasons that is affecting local businesses?
BRADBURY:
Look, the Productivity Commission made the point that this is an issue, but it is not the decisive factor for most retail businesses. I think it's actually worth asking the question, how did we get to where we are today. It's worth making the point that with a threshold of $1,000, this is quite high by international standards. We acknowledge that and understand the concerns that have been raised that point to the fact that this $1,000 threshold is quite high. So it is worth asking the question, how did we get to where we are today, and the answer to that is you go back to a key decision that was taken by the former government in 2005 when faced with the prospect of having to consider an alignment of two thresholds. The one threshold, which was for cargo imports, and the other, for international mail imports, they had the choice of aligning them at either $250 or a $1000. They chose to align those thresholds at $1,000, and in doing so I think that was a Betamax moment. That was a moment where the government of the day, they made the wrong call, like those people we all recall, they bought a Betamax video over VHS and it didn't take long to see it was the wrong call, the wrong judgement. And in increasing and aligning the thresholds at $1,000 back in 2005, and clearly, I make the point that the Australian dollar was not as strong as it is today, online retail was not something as understood as it was today, notwithstanding those factors, the fact that since 2005 the threshold has been so high, we haven't seen the investment in capability at Customs and Australia Post in order to cope with the massive number of parcels that would need to be processed if we were to lower the threshold. And that is in part, why we have such a complicated and difficult challenge today, because the wrong decision was taken back in 2005. The government of the day decided to increase the threshold to $1,000 and that is one of the reasons why we have one of the largest and highest thresholds in the world. An issue that needs to be considered, needs to be addressed, but of course we also say that cost-effectiveness and avoiding disruption at our borders are very important factors.
Can I just make this other point, that when I talk about consumer welfare I'm also talking about the welfare of businesses and many small businesses. As I talk to small business people right around this country, so many of them also tell me they secure their goods and procure items online through retail that they are engaged in, so this is not a straight-out debate between retail versus consumers and it's certainly not a straight-out debate between online Australian retail and online international retail.
JOURNALIST:
Are you saying the Taskforce is wrong then that you could actually cut the threshold to $100 and actually still make revenue? I think they say that there would be $30 million revenue at that level, they're saying it would still be cost effective at that level.
BRADBURY:
They consider whether or not there may be a point, or there may be points lower than $1000 where revenue collected could exceed the costs of implementation of that lowering. That is true. But you have to read the entire Taskforce report to see that even if a Government were prepared to make that leap of faith there is no comfort, and certainly no guarantee that we have the capability within our Customs service and Australia Post and with all of our freight forwarders, who have geared themselves up around that threshold of $1,000, there is no comfort or guarantee that they would be able to cope with the massive increase in parcels that would have to be processed. So all of these considerations are ones that we are considering and have framed the basis upon which we've provided this response.
JOURNALIST:
That's an interesting point, you're saying that if this goes ahead to lower the threshold you expect the States and Territories to contribute to the costs of that infrastructure. Isn't that a Federal responsibility, postal and Customs?
BRADBURY:
Let's be very clear about this. We reject any suggestion that we should immediately reduce the threshold, but if at some point in the future a Government were to reduce the threshold, every dollar of revenue collected would go straight into the pockets of the States. That's why, let's be clear, not strictly as a revenue question but as a question about what is the right policy judgement and what is right in the national interest. But if you were to reduce the threshold, every dollar of revenue would go into the pockets of State governments. Now under the GST agreements, where there are costs involved in collecting GST revenue then there is also provision for the States to make a contribution towards the collection and enforcement costs. That's not something new; it's an obvious point to make in the context of any discussion about any future reform, but we simply make the point that if at some point in the future all of the considerations I've listed before stack up and Government is prepared to take the decision to lower the threshold, then in doing so they would need to have a discussion with the States about the extent to which they were prepared to contribute to the collection and enforcement costs.
JOURNALIST:
Just on another point made by the GST Distribution Panel, is the Government going to consider capping mining royalties that the States can claim against the MRRT and to remove that incentive to eat away at the MRRT revenue?
BRADBURY:
As the Treasurer has said, we will consider the matters that have been brought forward by the GST Distribution review. Obviously we will give due consideration to all of the matters that are raised in the context of that report and no doubt these and many other issues will be discussed when the Treasurer meets through the usual COAG processes with the State Treasurers.
JOURNALIST:
The Herald's got a story this morning that the Government's asking bureaucrats to find fresh spending cuts in the lead-up to Christmas, only a few weeks away. Is that right?
BRADBURY:
It is an ongoing process for us to make sure that we're running a tight Budget. If you want to be fiscally responsible, then you should always be keeping a close eye on your expenditure, that's something that we as a Government are always doing and we want to make sure that right throughout the year we're keeping a close eye on our expenditure and if savings can be made, then they should be made. That's the responsible way to manage the Budget and that's what we're committed to doing.