[LINK] No dead cats please

[Stephen Loosley]

If governments are serious about transforming the public sector, parliaments are going to have to stop throwing dead cats, like Scott Morrison’s new overseas GST bill, over the wall. They create a spaghetti of bespoke business rules that need more bureaucrats, not less, to maintain.

By Tom Burton  .. http://www.themandarin.com.au/75536-tom-burton-no-dead-cats-please



Yet another dead cat is about to be thrown over the wall.

One of the most frustrating parts of being a public servant is when a minister and the parliament decide to handball a tricky political problem to the bureaucracy to fix. The fix inevitably needs a complicated regulatory patchover and painful execution and resourcing issues to sort out.

The poster child example in recent times was when then-communications minister Stephen Conroy decided Australia needed to filter the internet to protect us against baddies and pornographers. Whatever the virtue of the idea, the complexity of systems and compliance processes that would have been needed to come up with anything near effective was nightmarish.

In regulator land this is known as the dead cat option, and this week we have a live example with Treasurer Scott Morrison introducing a bill to remove the GST concession for low value goods bought offshore.

The big local retailers led by Gerry Harvey have been pushing for years to close down the concession, claiming they want a level playing field with overseas retailers.

A concession has existed for decades for goods worth less than $1000, as an administrative device to save Customs (now Border Force) the cost of having to collect duty and GST on low value transactions. These transactions were typically one off purchases by returning travellers — cameras, portable electronic devices and perfumes.

With the cost of collection for goods under $1000 typically more than the revenue to be gained the concession was a neat (and popular) fix.

Along comes the internet and with it the huge rise in offshore online purchases — much of it driven by the inexplicable, significantly higher cost of buying exactly the same goods locally.

For many years the Canberra econocrats resisted changing the concession, arguing it was helping competition in Australia’s notoriously oligopolistic retail sector.

It was also noted that no major economy seeks to collect revenue on small value transactions, because of the complexity of collecting and enforcing value-add taxes in external markets.

The cost of collection has slowly been coming down and is now estimated at around $60 a transaction. This means that, given a GST of 10%, the government will actually lose money on transactions of less than $600. The average value of internet purchases is estimated to be around $100, but the mode, or most frequent purchase, is around $10. For millennials, buying overseas online is second nature. In my own house a tiny parcel, usually containing an obscure piece of micro computing, arrives every other day.

It was this math that recently prompted the US to actually lift the de minimis level from $200 to $800.

But in Australia, Harvey and the big retailers finally convinced then-treasurer Joe Hockey and the states to go the other way.

The measure was announced in last year’s May election budget and yesterday the ever-assertive Treasurer Scott Morrison proudly introduced the bill. It requires all offshore retailers and/or their re-deliverers who sell anything to an Australian to register for GST and to remit it to the ATO.

The measure will raise $130 million a year once underway. Morrison claimed it as a world first. He’s right, no country, even with the encouragement of the OECD, has tried to levy a GST on foreign retailers of goods by registering those businesses in their tax system.

For a government that wants to reduce bureaucracy, the bill is a red tape nightmare, with 31 pages of impenetrable amendments. If the devil is in the detail it will defy any intelligent parliamentary scrutiny. Bring back John Faulkner, a senator who got across the detail at forensic level.

The bill seeks to target the big e-commerce platforms — Amazon, eBay and the looming monster of them all, the Chinese Alibaba. How willing they will be to reprogram their business systems and accounting processes to collect sales tax for the Australian government is to be seen.

In the case of eBay it will be particularly problematic. eBay is an on line bazaar, linking buyers and sellers, but is not a payment platform. Each retailer collects direct from the buyer, which means a Lahore-based online shop selling phone charging cords for $8 will need to register with the Australian Tax Office and send through the 80 cents when ever they sell to an Aussie. Good luck with that one.

If they sell through eBay it will be eBay’s responsibility to identify who the end consumer is in Australia, calculate the tax payable, remit the tax to the ATO and presumably collect that amount from the online shop. I doubt eBay wants to be a tax collector for 100 governments so I think some lucky lobbyist is about to get real busy.

If the retailer sells less than $75,000 a year to Australians they will be exempt from the GST, as are Australian retailers, but not if the sale occurs through the e-commerce platform. How all of that is to be tracked and enforced is anyone’s guess.

And good luck to the comptroller of customs, whose agency will be vetting these goods as they stream into the country.

A true dead cat.

The world will be watching Australia’s move. Don’t be surprised if they are saying if Australia can collect sales tax off their retailers, we will too.

This means the many Australian online retailers targeting offshore markets could quickly find themselves also being required to register and pay sales tax to a myriad of jurisdictions. Good times for the local accountants.

Many of the complexities and high costs of public administration come from having to string together schemes like this. Over time even more complexity and cost are typically laid into the system, supported by a web of IT and other bureaucratic processes.

As a result, much of government is riddled with back office complexity. This is the elephant in the room as government seeks to transform its services into fast, easy to use and intelligent services. Efficiently.

The cost of maintaining this spaghetti of bespoke business rules is huge. Witness the one billion dollar price tag to modernise the welfare payment platform.

If governments are serious about transforming the public sector to be relevant in the digital era, then parliaments are going to have to stop throwing dead cats, like Morrison’s overseas GST bill, over the wall.