More than 15%

GST underexplains the price difference between New Zealand online retailers and foreign competitors. A notable current example.

Eleanor Catton is the NZ author who just won the Booker Prize. The Luminaries was published by Victoria University Press. They're selling the paperback online for $35. It's out of stock and they promise to have more in two weeks. They don't say anything about shipping charges; I'm not sure if you can buy directly from them. They link to meBooks, a new Zealand e-books supplier. They're selling the electronic version for NZD $19.95.

NZ online retailer Fishpond has it for $33.72, including delivery, but shipped from a UK supplier rated as low reliability (by Fishpond) and subject to delays. MightyApe has it for $29.99, but also on backorder, and with shipping that brings it up to $33.89.

Without GST, Fishpond would be selling the book, including delivery, for $29.32. meBooks would have the electronic edition for $17.35 if GST didn't exist.

Book Depository has it, delivered to NZ, for NZD$22.65. Their website doesn't suck, it's easy to find what you want, and they're reliable. Amazon has it for USD$14 (NZD$16.87), but I never shop there as figuring out the international shipping charges is always a hassle. Amazon has a Kindle edition for USD$10.65, or NZD$12.83.

So a New Zealand book from a New Zealand publisher, in a world where GST didn't exist, would still be $6.67 cheaper sent to me from Book Depository: the Book Depository price is 77% of the ex-GST Fishpond price. GST makes up 40% of the total price difference. The rest is the standard "bought it in NZ penalty". And the e-book is $4.52 cheaper from Amazon than the ex-GST meBook price: GST is 37% of the total price difference. The rest is not GST.

For the marginal customer, the extra bit of price discount drives the decision to shop online from abroad. But I'd be awfully surprised if any substantial portion of online buyers are marginal. And especially not when it's typically easier to source things from international retailers than to find a Kiwi one online.*

Lance Wiggs suggested in comments at NBR levying the tax but placing the onus on taxpayers to comply. This is less bad than other options, but it still imposes a large hassle cost on online customers who want to be honest.

Owen Matthews noted that imposing the burden on foreign retailers risks their refusing to ship to New Zealand at all. This shouldn't be discounted. When I lived in Canada, a lot of American retailers simply refused to ship to me because hassles at the border for customers turned into headaches for them. If you wanted to bring stuff across and found a retailer who'd sell to Canada, couriers would impose something like a $30 brokerage fee at the border to get it across. This is likely what NZ retailers want to have happen here as well.

NZ retailers are pushing hard because they know that a lot of them just shouldn't exist. If you can have stuff shipped here, from abroad, including shipping, for much less than the NZ retail cost, then that part of the retail industry should shut down and have its inputs flow to higher valued uses. A small retail section would remain for those products for those who really need things in a hurry. Otherwise, warehousing and distribution costs in small markets mean that some local retail should simply cease to be. Expect much lobbying for protection in the interim.

* Exception: beer and wine. The Beer Cellar is great. So is Regional Wines.

Internet sales taxes: NZ edition

Should consumers buying online goods from overseas pay GST on their purchases? The Press reports that IRD is examining options.

The status quo is that purchases from overseas do not attract GST where the cost of administering and collecting the tax exceeds the tax collected. So purchases of $400 or less are untaxed: the fixed cost of collecting the tax must then be about $60.

The New Zealand retailers hate that Kiwis like importing things from abroad, but it's hardly the GST-savings that are driving things. You can fairly easily save upwards of 50% by using UK bookseller BookDepository rather than Kiwi outlets; fixed costs here matter a lot more than the 15% GST difference.

Were there some costless technology for imposing GST on goods coming in at the border, then New Zealand should do it. The more we can rely on consumption taxes, the less we have to rely on income taxes. If collection technologies change, then the threshold too should change.

So there is nothing objectionable about IRD's continuing to keep an eye on the optimal GST collection threshold and on things that might reduce collection costs.

But I do hope that IRD is weighing the costs of collection falling on all parties, not just those falling on IRD. When a package is held at the border pending GST collection, it takes time and hassle to bill people, and packages get delayed. All of that is off-budget from IRD's perspective, but they're real costs too that should count in the calculus. And, they're particularly pernicious costs: the random-draw delays that can obtain if goods get held up waiting for GST collection can put people off online shopping from abroad entirely. That's likely what the Retailers Guild is hoping for.

I expect that having the credit card companies or foreign retailers act on IRD's behalf would prove rather intractable. I would also be a bit surprised if collection technologies have advanced sufficiently to make it worthwhile to collect at lower than a $400 threshold, but perhaps IRD will surprise me.