Which of our big retailers could benefit from a $30 GST cap?

Australia’s big retailers and state governments have been vocal supporters of a push to lower the GST threshold on imported goods from $1000 currently to around $30. Paul McClintock of Myer (ASX: MYR) and Gerry Harvey of Harvey Norman (ASX: HVN) have been campaigning for years that the threshold was disadvantaging Australian businesses and costing Australian jobs.

In a recent speech, Myer chairman Mr McClintock cited research from Ernst and Young that showed Australia can expect to lose more than 33,000 retail jobs by 2015 if the threshold was not changed. While this number sounds large, the retail sector actually lost 36,600 positions in the three months to August as a lack of consumer and business spending depressed sales. For some perspective, the ABS reports that during 2010-11 around 1.2 million Australians worked in the retail sector.

Key opponents to the proposed legislation are consumer groups, because online overseas purchases are generally cheaper than those purchased in Australia, and various other commentators who have questioned if the government would collect enough tax to pay for the processing cost. Australia’s big retailers are having none of it though, successfully campaigning the state governments to back their lower-threshold plan.

A key meeting between Federal Treasurer Joe Hockey and his state counterparts this week will attempt to make progress on an agreement, which would lower the cap in exchange for initiatives aimed at increasing infrastructure spending. Some states argue that lowering the cap will increase revenue by such a degree that it could offset a partial or complete reduction in house stamp duty fees, thereby directly stimulating the Australian economy through increased housing construction.

Australia’s retailers could therefore see dual benefits; a decrease in the threshold may force more shoppers to purchase Australian, and increasing housing construction will spur demand for home furnishes and appliances. Companies such as Harvey Norman, Myer, and David Jones (ASX: DJS) pride themselves on being a one-stop shop for all your home furnishing requirements and have the most to gain from a boom in property construction.

Another tailwind for retailers is the lower Australian dollar. Sitting at around 91.5cents versus the US dollar, it is now down nearly 15% from a high of $1.06 back in January. As the exchange rate drops, overseas goods in US dollars become more expensive, levelling the playing field somewhat for Australian retailers.

Foolish takeaway

While any change in the tax-free threshold is not expected before 2015, the talks this week could lead to a landmark decision in early 2014 to draft new legislation and develop a method of collecting tax on smaller online purchases. This should have the effect of slowing the increase in online sales and could spur significant share price gains for retailers who offer the best value for money in Australia.

Right now, those companies are probably JB Hi-Fi (ASX: JBH) and Harvey Norman, while Myer and David Jones still have some way to go in the transformation of their respective businesses to be truly competitive in this coming age of digital-retail.

Not sure if bricks and mortar will be competitive in the future?

While a lower threshold will be a win for Australian retailers, the threat from online-only retail outlets will continue to put the earnings of traditional retailers under pressure. While we wait and see the outcome, you can discover The Motley Fool's favourite income idea for 2013-2014 in our brand-new, FREE research report, including a full investment analysis! Simply click here for your FREE copy of "The Motley Fool's Top Dividend Stock for 2013-2014."

Motley Fool contributor Andrew Mudie does not own shares in any of the companies mentioned.

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