On taxing purchases from Amazon, and Egypt

The current problems facing the retail book trade – and music stores – in New Zealand will increase the pressure on Revenue Minister Peter Dunne to impose a tougher tax collecting system on purchases made online. Currently only items worth $400 (or more) attract tax, locally. Unless this ceiling is lowered substantially, the people who run bricks and mortar businesses and employ staff in New Zealand will remain at a fatal price disadvantage – particularly over GST – in their competition with the likes of Amazon.com. Some recent Australian estimates have claimed 20% of retail spending is now going to foreign sellers, online.

In that sense, the current problems facing the Australian owners of Whitcoulls, Bennetts and the local branches of Borders are only the tip of the iceberg. (The extremely high Aussie dollar was also not helping the owners ) Taxing online purchases from foreign sellers is a difficult issue, politically speaking. Yes, local retailers shouldn’t be kept at such a blatant disadvantage. Yet obviously, punters are not going to welcome a policy that suddenly makes online shopping 15% more expensive.

Theoretically, the mechanism for collecting GST tax on line purchases is simple enough – you require credit card companies to collect it for you. (The other option, of getting courier companies to collect the tax on delivery, is not a runner.) That will not happen unless governments on both sides of the Tasman agree on cracking down in unison. Given the wage and income gaps between the two countries, the point at which GST kicks in is likely to remain far lower here than in Australia. Currently, $NZ400 is our ceiling : in Australia, items costing below $A1,000 are tax exempt.

So far, the Key government has been politically skittish about moving on this issue. Last year, Customs Minister Maurice Williamson seemed of a mind to be light-handed in his response:

“Although the Government recognises the concerns of retailers, it is also worth noting that there are competing interests in this area between those that want the threshold lowered and those that want it raised to align with that of Australia, which currently has a threshold of A$1000 (NZ$1270).”

Translation: do nothing if its likely to cost us votes, even if the current situation is anti-competitive, and affecting the jobs of New Zealanders. Wait and see if the sky falls in. Yep, that sounds like business as usual.


Egypt, one week later

Seven days after the political demise of Hosni Mubarak, no one seems entirely sure whether the result was a coup, or a revolution. Or both. To George Friedman of the Stratfor security think tank, this was a coup by the military regime against the 82 year old Mubarak’s plans to install his son Gamal as Egypt’s leader.

In his view, the military used the demonstrations as a smokescreen to act on their long simmering resentment against Mubarak’s dynastic ambitions. The military regime founded by Nasser back in the 1950s with the overthrow of one hereditary monarchy in Egypt was not going to let his successor create another one, right under their noses.

Friedman also points to the small size, relatively speaking of the crowds in Egypt :

Certainly, there was a large crowd concentrated in a square in Cairo, and there were demonstrations in other cities. But the crowd was limited. It never got to be more than 300,000 people or so in Tahrir Square, and while that’s a lot of people, it is nothing like the crowds that turned out during the 1989 risings in Eastern Europe or the 1979 revolution in Iran. Those were massive social convulsions in which millions came out onto the streets. The crowd in Cairo never swelled to the point that it involved a substantial portion of the city.

In a genuine revolution, the police and military cannot contain the crowds. In Egypt, the military chose not to confront the demonstrators, not because the military itself was split, but because it agreed with the demonstrators’ core demand: getting rid of Mubarak. And since the military was the essence of the Egyptian regime, it is odd to consider this a revolution.

As for the road from here… well, there’s always a chance that the military regime in Egypt really does mean to change its spots, and will allow a genuine democratic opening in the elections due in September. More likely, the crowds will have to come out again, if and when the military’s assurances in that respect prove hollow. As Friedman says, getting rid of Mubarak may have been the easy part – mainly because the demonstrators and the military regime were both agreed on that goal, and wanted it to happen. Since then in Bahrain, Iran, Yemen and Algeria, we’ve seen what happens when the regime doesn’t agree with the crowds. Friedman again:

The Egyptian regime is still there, still controlled by old generals. They are committed to the same foreign policy as the man they forced out of office. They have promised democracy, but it is not clear that they mean it. If they mean it, it is not clear how they would do it, certainly not in a timeframe of a few months…. Nor is it clear that anything that has happened changes Egyptian foreign or domestic policy. The week began with an old soldier running Egypt. It ended with different old soldiers running Egypt with even more formal power than Mubarak had. ..We should point out that, in spite of the crowds, nothing much has really happened yet in Egypt. It doesn’t mean that it won’t, but it hasn’t yet.

An 82-year-old man has been thrown out of office, and his son will not be president. The constitution and parliament are gone and a military junta is in charge. The rest is speculation.


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