How low would David Cunliffe propose dropping the current $400 no-GST threshold for foreign purchases? The implication is very low, book price low, although it’s not clear whether it would go as low as David Farrar is suggesting – ebook and iTune low, which would be a dollar or two low.

I have obtained a recording of what David Cunliffe said about the GST threshold on foreign purchases – his explanation of his comments and David Farrar’s interpretation have been different.

Tom Pullar-Strecker reported in Retailers in GST counter-attack (Dominion Post) about comments made at a seminar at Victoria University last Wednesday:

Labour revenue spokesman David Cunliffe said a low threshold for charging GST on overseas purchases would stop the Government “subsidising foreign commerce” and was a “no-brainer”.

David Farrar picked up on this at Kiwiblog in a post Retailers need to stop trying to tax us online

Oh wonderful. Make sure everyone knows this. Labour Party policy is to tax your online purchases more. Buy a book from Amazon, and Labour will hold it up at the border until you pay the Government an extra 15% of the price.

Will Labour also block itunes? We can’t have people downloading music and not paying GST on it. So to implement their policy they’ll have to block itunes in NZ, and only allow people to purchase from a NZ located online retailer.

Labour grandstanded on the carpark tax (yet never had a clear policy on it), but have now trumped that with their e-tax. I look forward to detailed Labour policy on what they would reduce the threshold to so we know how many of our online purchases they plan to stop at the border.

I tweeted David Cunliffe asking “what sort of lower GST threshold do you suggest for overseas purchases?” – he responded:

@DavidCunliffeMP

TP-S writes up a question as a statement and DPF goes ape… Calm down folks there is more work to be done on that question.

In another post at Kiwiblog, Labour’s iTax, David Farrar further implied that Labour would apply GST to small foreign purchases like ebooks and itunes. That would have to cover purchases of just a dollar or two, implying an extremely low or no threshold.

I was interested to find out how much Farrar could be exaggerating, or Cunliffe could be fudging his intent.

I have obtained a recording of Cunliffe’s comments, it’s a poor quality recording but key phrases can be heard clearly enough:

Just following up on John’s question, given that we’re talking about a a smaller picture here, which is the GST collection…

…is this not a no brainer, why don’t we have a single point low threshold, and as John said, stop subsidising foreign commerce…

…surely it’s a no brainer, why hasn’t it been done before?

Cunliffe is correct, he does ask a question – but in twice also saying “a no brainer” there is a clear implication that Cunliffe favours a lower threshold.

How low? He has avoided answering that. But the research being presented at the seminar was sponsored by Booksellers NZ. This implies a much lower threshold than the current $400.

‘The Rise in Foreign Retailing and New Zealand’s GST Exemption: Time for a Change?

Speaker: Summer Scholarship Research Assistant William Steel, with an introduction by Lincoln Gould, CEO of Booksellers NZ (sponsors of this research project).

Abstract:

This presentation will report on results from a recent project evaluating the economic and revenue costs of this distortion. It will argue that, by diverting domestic spending offshore, the government not only misses out on GST revenue, but also loses out on some company and PAYE tax revenue and is distorting consumer choices. But there are significant collection cost issues when trying to levy GST on low value purchases from foreign retailers. We discuss of a number of options to collect such GST revenue if New Zealand’s foreign GST-free threshold was reduced, and outline how a cost-benefit analysis could be made.

In the past two decades the New Zealand retail market has undergone a rapid transformation. What was traditionally bought in stores is now increasingly being bought online. As a result many goods purchased from foreign websites, valued at up to $400 each, legitimately avoid paying 15% GST. Such an exemption creates a distortion that favours overseas retailers over their New Zealand based competitors

Obviously there is no Labour policy on this at this stage, Farrar is over-egging that aspect.

But Cunliffe seems to clearly favour a much lower “single point low threshold“. As opposition spokesperson on Revenue it is his job to investigate and consider changes like this.

It’s difficult to know whether Cunliffe was poli-pandering to an audience or if he would seriously consider a change to a very low (or no) GST threshold.

Cunliffe recently criticised the proposed car-park tax, in part because of the compliance cost, some claims where that it would exceed the tax take. There are major issues of compliance costs for small online purchases being delivered by opost, or delivered over the Internet.

It will be interesting to see the specifics of Labour policy on this – should they decide on a clear policy.

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Reference article and links to research:

Booksellers NZ – International e-commerce: the downsides for NZ retail and tax revenue

A Proposed Pathway towards future reform of New Zealands de minimis threshold (opens to PDF)

E-Commerce and its effect upon the Retail Industry and Government Revenue