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Johhny Hippocket Encounters Exchange Rates, Fees and Freight
Johnny goes online to order his ThingaMeJiggit from Hong Kong for US$85.00. He saw on the news today that the exchange rate is A$1.00 = US$1.04 so he calculates that the US$85.00 ThingaMeJiggit is only going to cost around A$82.00. That’s an even better bargain than it first seemed. Johnny congratulates himself on how clever he is.
Johnny Hippocket orders the ThingaMeJiggit and checks out of the HongKong online store* Indirect Hidden Cost 1.
There is a freight charge of US$30.00 for the parcel, but that’s ok because Johnny’s mind keeps telling him that he’s saving around $100.00 - possibly more when the exchange rate is factored in. Johnny can’t wait to tell his mates at the ThingaMeJiggit club how clever he was and how he beat those ripoff Australian retailers. * Overlooked Costs
Johnny even notices that the ThingaMeJiggit website offers to issue invoices at 10% of the value or mark them as a "gift". This must be a really great company to deal with because they understand the loopholes created by the Australian Government import threshold and they will help Johnny avoid paying his taxes if he decides to order more than $1000.00 next time. Johnny really must share this information with his friends at the ThingaMeJiggit club. Johnny feels it is his duty to spread the word and take advantage of this situation. He already pays too much tax and he is happy that the Government and ThingaMeJiggits Online has provided him with this loophole.
A few weeks later Johnny’s credit card bill arrives. He notices the A$1.50 currency conversion fee on the statement, and thinks it’s a small price to pay for his $100.00 saving. He doesn’t notice that the exchange rate the credit card company uses isn’t the same as the rate he saw advertised on the news 2 weeks ago. In fact he can’t even remember what that rate was. So even though the US$115.00 he purchased was charged at A$116.48 plus a A$1.50 fee, his mind still tells him how smart he was because he saved about $100.00 on the ThingaMeJiggit. He really must tell the guys at the club again. There’s a new bloke coming tonight, so Johnny better let him know just how clever he is and how he saved $100.00 by buying online.
Indirectly Johnny has just cost Australia $12.00 in lost tax revenue. That’s how much would have been included in the price of the ThingaMeJiggit if Johnny had accepted the cheapest price of $130.00 that he had been quoted by an Australian retailer. Unfortunately the 2013 Australian Government encourages Johnny and millions of people like him to purchase their goods from overseas by not charging them GST when they import anything under $1000.00. At the same time, Australian retailers must charge GST on every sale. The effects of this policy are billions of dollars in lost GST tax revenue and billions of dollars in lost profits by the Australian retailers who are being bypassed. This results in more lost tax revenue because the Australian retailers have less profits to be taxed. It also means that Australian retailers have less profits to spend with other Australian companies, further decreasing profits and tax revenue. On top of all this, it leads to job losses and job losses lead to increased welfare payments. Throw into the mix the fact that many overseas stores are purposely under declaring invoice amounts so as to avoid the $1000.00 threshold and it becomes obvious that it's not just the smaller purchases that are avoiding tax, but many larger ones too.
The psychology of a purchase like this is that, only the original saving is retained foremost in the mind of the purchaser. $30.00 freight doesn’t seem high when Johnny thinks that he is saving about $100.00, but if Johnny fully analyses the suituation he would recall that he was quoted $130.00 by a local retailer. Now we have a comparison of US$115.00 versus A$130.00. Sure, it may still appear that Johnny is on a winner at this stage because he stands to save about $17.00 at a cost of only $12.00 to Australian GST tax revenue and possibly $30.00 to the Australian retailer and a further $10.00 to Australian PAYG tax due to lower profits. But all of these costs don’t directly affect Johnny Hippocket, so why bother to even think about them? Johhny is better off by $100.00 in his mind and he can’t wait to tell the guys.
It costs the Australian economy even more when overseas companies offer to lower their invoice price to help customers avoid paying taxes and duties. These are hidden costs, and they definitely outweigh the immediate benefit the customer has to their own hip pocket. Each consumer using this scheme has the idea that "everyone else is doing it so why shouldn’t I?". One person electing to have their invoice charged at the full rate and therefore pay their fair share of taxes is not going to make a difference when a thousand others don’t. The cost of this mentality hits indirectly when the Government doesn’t have enough tax revenue to maintain roads and fund education, health and other important things. They also need to find more money to pay welfare to the people who Johnny caused to lose their jobs. Either these areas of our society suffer, or the Government feels a need to introduce new taxes like carbon tax and mining tax which further damage the economy. Look out for upcoming huge budget deficits, increased tax on our superannuation savings and a variety of new and increased taxes to help make up the shortfall. Again, the effect of this on Johnny Hippocket won’t be immediate and when he retires he won’t even realise that the decisions he made years ago buying his ThingaMeJiggits from overseas and avoiding taxes have all resulted in lower weekly pension payments from his superannuation.
Other Views on This Topic
- Lew warns of job losses
- A review backs GST for online imports
- How the Government is making Australia Unaffordable
- Thinkers Lounge
- Australia the Silly Country - Online Consumers are Hurting their own Futures
- Online Shopping (importing) is Short Changing Society
- US Shops target Australia - and Australians are only too happy to send their money overseas
- Lobby Group Pushes for an Even Playing Field
- Hobby & Engineering Backs off Certain Products
Disclaimer! Johnny Hippocket is not a real person. To the best of our knowledge ThingaMeJiggits are not real products. Aspects of Johnny Hippocket’s personality may resemble real people, but any resemblance is not intentional.
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