Will scrapping the GST-free threshold really boost retail?

Alan Oster, chief economist for National Australia Bank (ASX: NAB), has shut down claims that state revenues would be boosted by $800 million should the $1000 GST-free threshold on imported goods be scrapped, suggesting that such a move would fail to raise even half that amount.

Currently, a loophole exists which allows customers to purchase goods from international stores and import them into Australia GST-free, provided that they hold a value below $1,000. Whilst this is good for customers, it creates a significant disadvantage for local retailers such as JB Hi-Fi (ASX: JBH), David Jones (ASX: DJS) or Harvey Norman (ASX: HVN), which cannot compete on prices for foreign goods.

It has been argued that in addition to saving around 33,000 jobs in the sector, scrapping the GST-free threshold could increase state revenue by up to $800 million. However, NAB’s Oster argues that reducing the threshold would raise $360 million in GST at most, which would only be achieved if the threshold was scrapped completely.

Basing his figures on data flowing from the activity of millions of NAB customers, he said that $40 million would be raised if the threshold was lowered from $1,000 to $500 whilst $210 million would be realised if the threshold was lowered to $100. “If you got rid of it completely, you would get about $360 million.”

Despite Oster’s comments, Myer’s (ASX: MYR) chairman, Paul McClintock, believes that there is no longer a barrier to shutting down the loophole and that the Coalition government will soon begin to act on closing it.

Foolish takeaway

Regardless of the magnitude of the increase in GST revenue, scrapping the GST-free threshold would provide a boost for the local retail scene which has struggled against poor consumer confidence as well as a rapidly expanding online retail sector.

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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