Productivity Commission recommends retail industry reform including reduction of GST-free import threshold

The Productivity Commission has unexpectedly recommended the government should reduce the $1,000 GST-free import threshold, but acknowledges this is only a small problem facing the retail sector and says further structural reform is required.

The commission's draft report recommends that state and local governments need to harmonise their laws and reform planning, zoning and retail trading hours restrictions. It also recommends that the Federal Government should review any constraints created by workplace relations regulations.

"Intensified retail competition is a boon for consumers, but it is challenging for a retail industry which, overall, has lower levels of productivity when compared internationally and, in many cases, faces higher costs," says commissioner Philip Weickhardt.

"However, the government's role is not to shield the industry from competition but to remove constraints which restrict the industry in responding to this heightened level of competition."

The overall report acknowledges many problems pressuring retailers including planning and zoning restrictions, pressure within shopping centres on retail tenants and varying regulations on trading restrictions.

It also acknowledges that more people are spending more money on non-retail services, such as property, travel and entertainment.

And while it acknowledges that the current low value import threshold is a "minor part of the competition story", it nevertheless says that the threshold "in principle should be reduced to a low level to ensure tax neutrality".

In a move that is sure to be welcomed by the Fair Imports Alliance, the Productivity Commission also says that current processes for collecting taxes and duties "are not efficient".

"As the threshold is lowered, costs of collection increase significantly – at very low thresholds, (for example $20), the costs of collection would exceed tax revenue by over three to one."

"Such a cost impost on both importing businesses and consumers is unacceptable even without considering additional costs such as delays."

The report also recommends that the government should investigate the current system for processing incoming parcels, "with a view to then reducing the LVT in a cost-effective way".