Why Gerry Harvey is wrong

| January 11, 2011

Gerry Harvey should be careful what he wishes before crying out for a “level playing field”.

Today we will consider a significant public policy issue that affects all of us: competition in the retail sector. Gerry Harvey and other large Australian retailers are arguing that the Australian Government should impose the GST on purchases made online from overseas suppliers, to create a level playing field for Australian retailers.

Gerry Harvey has gone so far as to label Australians who shop online as “un-Australian”, using emotional hyperbole in a way that many have found offensive, as shown here. I am not going to get emotional about this – I will consider the facts.

Harvey and his fellow millionaire retailers argue that:

  • the rising Australian dollar has made it easier for shoppers to get bargains online from overseas; and
  • the absence of the GST on purchases online from abroad that cost less than $1,000 per shipment is unfair to Australian retailers.

That is why Harvey is arguing for the imposition of the GST on online purchases for abroad, to “create a level playing field for retailers”, he says, because the absence of the GST makes it hard for Australian retailers to compete.

Let us consider these arguments. First, if the Australian dollar is now worth more, the advantages of its greater purchasing power are available to Australian retailers who import goods to sell here, which should be reducing costs in the shops and department stores. While some goods have become cheaper, the price differential for electronic goods, for example, remains high. We pay significantly more than Americans do for the same items. The retailers may say: ah, but you forget that it costs money to ship goods to Australia. In reply I say:

  • the costs of shipping should also have fallen as the value of our currency has risen;
  • you can buy Australian wine more cheaply in London than you can here;
  • I can buy a lens for my camera from the USA for half the price I would pay here, pay for the high cost of shipping a single item and still be hundreds of dollars in front; and
  • the US retailer is still making a profit.

I think that is online shoppers one, Gerry Harvey nil.

Now, let us turn to the GST argument. First, as has been explained over and over again, it would cost the Government, which means us taxpayers, more to collect the GST on online purchases from abroad than would be raised in revenue. Ergo, taxpayers would be subsidising Gerry Harvey and his mates. Second, going back to my example of the camera lens, even if GST were added to the cost charged by the US retailer, I would still be hundreds of dollars in front.

I think that is online shoppers two, Gerry Harvey nil.

To make it three to nothing, let us also remember that online purchases from overseas amount to a fraction of the turnover of the Australian retail sector. According to the Australian retailers Association, the retail market in Australia is worth $240 billion annually. Estimates for online purchases from overseas range around $3 to 6 billion. If Gerry and his mates can’t make enough money from the $234 billion remaining, I think it is time they handed in their key to the executive loo.

This is something that Ruslan Kogan understands well, as he explains in his blog. In that blog, Kogan makes many valid points, but the one most worth repeating is this one:

The big guys say they want an “even playing field”, so they spent millions of dollars on a national campaign to get a “fair go”. But, it’s hard to take them too seriously when Harvey Norman alone spent more than $355 million on “marketing expenses” in FY2010, which was more than 26% of their total sales revenue. 

That means that one dollar in four you spend at Harvey Norman goes directly to pay for advertising and that, in return, Gerry Harvey gets a big chunk of that money back as a tax deduction. So, we pay for Gerry’s advertisements twice, as customers and as taxpayers.

Let us now understand what is really going on here. The argument Gerry Harvey is making is anti-competitive. It is customers who are entitled to a level playing field, not retailers, because a non-level playing field for retailers is essential for effective competition, which we do not have. What Gerry Harvey wants, in effect, is a new tariff wall that would enable major retailers in Australia to continue to operate just as they like, lazily, incompetently, resisting any innovation that might generate greater contestability in the market.

The truth is that retail competition in Australia is almost non-existent, reminding me of the good old TAA-Ansett duopoly of old or of the Telstra and mini-Telstra (Optus) farce that passes for competition in the telecommunications marketplace. Maybe, Gerry Harvey, we need an equivalent of the NBN to shake you and your so-called competitors out of your comfortable cocoon. Hang on a minute, we do have the shopping equivalent of the NBN, Gerry, it is called the world wide web. You know, the place that Australian retailers almost universally ignore, including, of course, Harvey Norman.

Well, Gerry, in business ignorance costs money. Happy bargain hunting, dear readers.


This blog first appeared at www.openforum.com.au