Will dropping the GST-free threshold really change buying habits and save retail jobs? A SmartCompany investigation

While the retail industry has gone on the offensive, claiming 118,000 jobs are on the line if the Government doesn’t eliminate the low-value threshold, further investigation into the details of the report suggest the numbers don’t all add up.

A theory contained in the report, that import costs would rise by 14% if the Government eliminates the threshold, and subsequently force people to buy in Australia, has also been proven to be problematic after a SmartCompany investigation.

The National Retailers Association released the report, compiled by Ernst & Young, late last week. It claims that tens of thousands of retail jobs could possibly be eliminated if the low-value threshold isn’t eradicated, although the report admits that calculating the impact of reducing the threshold is “not known and difficult to determine”.

The report suggests however that if the low value threshold were to disappear, this would equate to a price impact of 14%, for the purposes of the report. As a result, this would theoretically reduce demand for imports and increase sales within the Australian online sector.

There are two assumptions made in the report. The first, a “high impact” model, suggests that the value for foreign imports would reduce by around 70% with the elimination of the threshold. “That is, a 14% price rise would reduce demand for imports by 70%” it states.

The second “medium impact” model suggests there would be only a 42% reduction in demand for imports. 

It’s this assumption that is behind the report’s calculation that 118,000 jobs are on the line. That figure is based on the dollar value of retail spending that would remain in Australia if the threshold were eliminated, averaged out per employee.

But as Forrester research analyst Steven Noble points out, price is only one consideration when shoppers decide to buy offshore.

“The others are product availability and the buying experience provided by the site. So while there may be Australian retailers trying very hard to provide that experience, no one can do the same as an Amazon, for instance.”

In 2010 SmartCompany conducted an investigation, comparing local prices to those available on offshore sites. We’ve compiled a new list, and the results suggest a price increase of 14% would do little to impact the decisions of local buyers.

The results of this quick SmartCompany investigation discovered that while not all categories contain possible price savings, most of them do – and many of them far beyond the 14% increase theorised in the report.

DVD – “Game of Thrones“

Amazon – $US43.99 (+14% = $US50)
JB Hi-Fi – $52.98

Book – “Steve Jobs“

Amazon – $US17.49 (+14% = $US19)
Booktopia – $38.26

Toy – Nerf N-Strike gun

Amazon – $US19.98 (+14% = $US22)
Big W – $17.30

Video Game – Mass Effect 3

OzGameshop – $60 (+14% = $US68.4)
EB Games – $88

Shoes – New Balance M1260

Zappos – $US144 (+14% = $US164)
Rebel Sport – $AU249

Handbag – Fossil

American store – $US198 (+14% = $US225)
Australian store – $299

Guitar Strings – D’Addario EXL110

Guitar centre – $US5.30 (+14% = $US6)
Billy Hyde – $12.99

MacBook

American store – $US1,199 (+14% = $US1,366)
Australian store – $1,399

Ralph Lauren cologne

FragranceNet.com.au – $US69.79 (+14% = $US79)
FeelingSexy.com.au – $89.95

Although some categories would make the price difference much smaller, there is still a swing to offshore sales for most products with the price difference remaining so large.

Noble says it’s important to remember that while offshore sales are growing, domestic online retailing is growing as well.

“There are so many different factors here,” he says.

“Not all the products people are exposed to are available online or on the shelf. As long as these situations continue, then there will be a reason for purchasing online, especially if the price difference allows it.”