The Walls Are A Tumbling Down.

This week the government passed legislation to allow for tax cuts on profits made by businesses below $50 million in gross sales. Good news for those retailers who qualify – and make a profit. The stimulus the government believes this ‘extra cash’ will generate is great on paper. International businesses do not need lower tax rates here to sell here or invest here. The reality is that the government – and domestic tax-payers – would be far better off if they applied the current tax rules to all competitors equally – most notably international competitors. Australian companies could produce more revenue at better margin and employ more people and the tax revenue would be higher, for a country that is spending far more than it is earning.

Gerry Harvey is right. Most international competitors do not pay tax in this country regardless of the domestic tax rate because they ensure they do not make a profit here. It has taken forever to get the government to even take the simple universal application of GST to all players seriously (including offshore e-commerce) and now we have an even bigger threat.

Just recently a major delegation from the Chinese government and the Chinese business lobby (led by Jack Ma of Alibaba fame) visited Australia to lobby the Federal government to secure a free trade agreement for e-commerce between China and Australia. Cynically perhaps, it would seem the only reason the Chinese want this is because they are astute enough to know how one sided this agreement would be.

As global sourcing turned China into the factory of choice for almost every sector of Australian retail, the country’s powers that be woke up to the opportunity this created. Chinese factories rapidly evolved into vertical brands, selling trillions of dollars of goods to their own countries burgeoning middle classes and have increasingly either knocked back supply agreements with international brands or priced them up to the point of unaffordability because they have outgrown the need to simply be manufacturers. These same factory ‘brands’ now see e-commerce as a global opportunity to ship clearance, surplus and volume product around the world with massive margin advantage.

If Australia opens the door to this trade – in the manner being proposed – the open door to China will not be as easy to exploit in volume for Australian brands, as most of our goods are now made in Asia anyway and already sold into China from far closer to home. Yes there are exceptions. But not enough to stop the balance of this trade being too far to China’s advantage. The impact could be disastrous for the domestic Australian retail sector.

It is time governments globally acknowledge that the 4th industrial age is wreaking havoc with the theory of open markets and global sourcing. If we want to be able to support strong domestic employment environments and transition domestic brands into global exporters, we need governments that will support that transition by creating level playing fields and stimulus to local businesses to evolve into globally competitive models.

Pressure needs to be levelled at the political system before this becomes a situation that cannot be recovered. Retail is a major employer and a big contributor to middle class incomes. We need a new approach that better fits the emerging 21st century market context, stops governments giving away un-necessary cash overseas and affords Australia the chance to compete globally to domestic benefit.