Economics for Managers: Analysis of Turnbull's Online Shopping Tax System in Australia

This paper analyzes the effects of Turnbull's online shopping tax system on the Australian economy. It examines the rationale behind the creation of an online shopping platform, the efficiency of Australian online retailers, and the impact of multinationals on the economy. The paper concludes that the proposed GST collection model is likely to render Australia's business market unviable in the current global market.

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ECONOMICS FOR MANAGERS
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Economics for Managers
In the past two decades, Information and Communication Technologies (ICT) have
reached high new highs of sophistication and experienced consecutive cost reductions. Both
factors have eased the adoption of these technologies by many firms, along with the general
population, leading to increased access to internet structures. This technological progress has in
turn catalyzed in the formation and growth of electronic commerce. In this setting, the Internet
permits for consolidation as an additional commercial channel through which merchants gain
access to their target markets.
Increased application of e-commerce for local actions awakens an interest in research in
this field because of its economic effects. It is commonly accepted that features of the Internet
would bring about greater market efficiency, in agreement with economic models of perfect
competition (Wacziarg and Welch 2008). This belief is premised on the notion that the use of the
Internet infers lower search outlays for the household. The correlation between the balance price
and the costs above was deliberated by Amiti and Konings (2007) who indicated that rates could
stay over marginal costs if a certain amount of search costs exists, even in the case of
homogeneous merchandises.
In contrast, Bernard et al. (2011) hypothesized that low search costs connected to online
shopping would encompass a price reduction to the number of marginal costs in the case of
homogeneous merchandises, with lower price declines in the case of heterogeneous
commodities. Given earlier studies in this particular area, there exists a need to examine to what
level the Internet is more efficient than the traditional channel for retail markets and the short run
and long run effects it can have to any particular country. For this paper, the analysis is centered

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on the Australian economy especially with the introduction of the Turnbull’s online shopping tax
system by the government.
Q1
The article is about Turnbull government’s plan to impose the tax (GST) on all online
purchases. For the most prolonged period, multinationals have been evading paying tax which is
the primary source of income to the government. Despite the cold reception of the policy, this
move by the government is justifiable as it seeks to tap into the unexploited area that all
potentials to enrich the government expenditure on public goods.
On one side, multinational companies such as Amazon and Amazon and eBay express
their disappointments with the platform arguing that it high restricts the Australians an
opportunity to shop for a variety of products across the word and at fair prices (Chung, 2018).
For instance, Amazon believes that shifting its purchasing platforms from Amazon.com to
Amazon.com.au will deny the inhabitants a chance to shop from a variety of traders and expose
them to increased prices for the available goods.
On the other side, the government maintains that the move is aimed at increasing
efficiency in the Australian economy as it will not only generate revenue to the government but
also impose a fair ground for both local and multinational companies to trade (Chung, 2018). As
such, the government of Australia deems it ideal to impose GST on all online trades for the
benefit of the Australian economy. With the two sides of the story about the introduction of
Turnbull’s online shopping tax platform, the topic is still attracting debates from scholars,
analyst, and consumers not only in Australia but all over the whole world.

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Q2
I agree with the statement. Policy makers and economists have applauded the outcome of
‘trade liberalization’ involvements, and this is mirrored in the wide range of empirical and
theoretical studies. For example, Carlton and Perloff (2015) recognizes the following gains from
trade liberalizations: (i) static gains from enhanced resource allocation, which is the classical
source of advances from freer trade; (ii) access to a superior variety of products, which increases
productivity by offering higher quality or less expensive intermediate goods; (iii) the
accessibility of imported technology and intermediate products , whether embodied in imported
capital or licensed goods; (iv) a more economically balanced market structure, to be precise,
benefits from liberalization can also accrue from economies of scale that occur in broader
markets; (v) a transfer of knowledge and expertise, in accordance with the new growth theory.
In keeping with the Heckscher-Ohlin theory, a trade makes it possible for each nation to
specialize in creating products for which they have a related plentiful resource. Each state
exports goods the country is most well-matched to produce in exchange for goods it is less suited
to manufacture. In context, Australian local companies with relatively abundant natural resources
will concentrate in creating certain types of products, while for Amazon and other multinationals
with relative plentiful skilled workers and technology would specialize in producing say
manufacture goods. In this event, trade may benefit both Australia and the home country of
Amazon (America).
The standard model of trade also infers that the presence of the relative global supply
curve ensuing from the production prospects and the corresponding global demand curve ensuing
from the different preferences for a particular good. The exchange rate is influenced by the
intersection/crossing between the two curves, the relative global demand curve, and the

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corresponding global supply curve. If the other fundamentals remain constant, the exchange rate
advances for a country indicates a significant rise in the welfare of that particular country.
Q3
The rationale behind the creation of an online shopping platform by the government of
Australia is to generate more revenue and at the same time ensure that there is fairness regarding
market share and costs. This comes amid increased competition from local producers from large
multinational companies which are benefit from reduced setup and operations cost that are
boosted by economies of sales.
On the positive side, the realized income may be used by the government of Australia to
fund public projects like construction of schools, improving the health sector, provision of street
lighting, construction of roads and railway lines among others things. Besides, the move is
considered an ideal way of ensuring and sustaining the growth of local industries that are often
forced to close shops owing to stiff competitions that emanate from the arrival of international
firms. Regardless, introducing the online government platform is not the best way to create
market efficiency for many reasons.
First, it reduces the competitiveness of the market as the local industries may not face any
competition from other international firms and thus may end up comprising on the quality of
their goods and services. Regarding product availability, customers may not be able to choose
from a list of products as few products are available in the market hence their consumption rates
may be affected negatively.
Second, it limits the transfer of technology and skills as most of the operators of these
international firms possess different skills to those of local traders. According to Kokko (2004),

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new businesses comes with new technology alongside skilled workers that are critical regarding
diversifying production strategies in any given country. Solomon (2012), explains that skilled
labors can transfer their knowledge as they also gain some essential skills from the local traders
which encourage productiveness and work diversification. This would result if such international
firms opted not to cooperate with the new government policies and exit that country.
Third, the government may risk the chances of the economy not to enjoying economies of
scale that arise in broader markets. According to Paul (2018), more economically rational market
structures are fruits of liberalization and can be realized through the opening of the markets for
other firms to venture in. The benefits that accrue with economies of scale include the transfer of
technology, skills and knowledge and an increased number of skilled labor.
Lastly, the introduction of the online platform is more likely to give to monopolies
supported by government regulations. This would be the case if most international companies
left the country for other markets leaving local traders to supply their commodities. The
effervescence of the monopoly market would be escalated by the lack of competitors to drive the
forces of demand and supply and also by the government intervention in the market. According
to the neoclassical economics, a market should be allowed to be controlled by forces of demand
and supply.
With the arguments mentioned above, this kind of government development in regards to
tax administration is more likely to create trade distortion whose effects will ripple to others
sectors of the economy creating market inefficiency. This would become as detrimental as it
would be occasioned by a reduction in employment rates, reduced foreign exchange reserves,
low levels of technology transfers and inventions and innovations, and increased cost of doing

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business. All these outcomes constitute market inefficiencies and would also be characterized by
household consumption patterns.
Q4
I do not agree that Australian online retailers are more efficient for many reasons. First,
this new development by the government is least expected to convince the multinational
companies to remain in the country. What this means is that the Australian retailers would be left
with no or less competitors giving them a platform to monopolize their product. With the
argument about the high cost of producing goods which good be understood to be right on the
grounds of diseconomies of scale, these local traders are likely to increase the prices of their
commodities causing an inflation crisis as the price of general goods and services increase.
For the capital-intensive local companies, this will also be a chance to face other local
companies out of the market as some will fight to control the sources of these goods creating an
internal crisis. Besides, the local companies will suffer from a lack of technology transfer as
most of the local companies may not be on par with the latest technological advancements and
inventions. Accordingly, this would mean that the production of goods and services would be
made more costly supposing all multiwall firms exited the country.
Q5
“If multinationals are not forced to pay their fair share of tax, they will have a
competitive advantage over retailers here in Australia, on our main streets and in our shopping
centers." I consider this statement to be right on different economics grounds and which are more
connected to the existing literature on trade liberation and its effects on the economy. Of the
host.

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First, these firms are already established and seeking expansion in different states.
Secondly, these firms use the latest technology to produce and sell their commodities. Lastly, the
multinational companies may boast having workers who are skilled in different areas to those of
the locals. With this in mind, the existence of multinationals in Australia assuming that the
government withholds the new online tax policy would attract both short run and long run effects
to the economy.
In the short run, the presence of the company would increase the competitiveness of the
market increasing the supply of goods and supply while at the same time pushing the existing
prices of such products downwards. This would affect the profit margins that are realized by the
local traders owing to the reduced profit share and correspondent costs of production. With this
trend, most local companies will end up making permanent losses and will eventually exit the
market leaving it to the multinational companies to dominate.
In the long run, since most of the local traders will have been eliminated in the market, it
would mean that most of the goods that will continuously be consumed will be imported. In
other words, there will be less locally produced goods for local consumptions as well as
exporting. This would hurt the balance of payment of Australia as much of the realized proceeds
by the multination through the sales of their products would be plowed back to their home
economies.
At the same time, since few or no goods will be getting produced locally, it would mean
that the foreign reserves of Australia will be shrinking as no or less income would be combining
from exported goods. This will mean that the number of imported goods would exceed the
exported goods leading to what is commonly known as a “Deficit balance of payment.” This
would also come with increased imported inflation as well as the reduction in the value of the

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Australian dollar. The whole process would end up destabilizing the Australian market which
can lead to an economic crisis if not controlled earlier.
Conclusion
The debate on Turnbull government’s plan to impose the tax (GST) on all online
purchases is excruciating as the negatives of imposing the platform surpass the positives. Given
the susceptibility of the Australian economy to trade distortion from, the Australian government
should withhold the law for the gains of the economy. This paper concluded that any proposal
concerning collection of GST under a model that is likely to render Australia business market
unviable in the current global market that would put severe strain on the financial position of the
country’s economy.

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References List
Amiti, M. and Konings, J., 2007. Trade liberalization, intermediate inputs, and productivity:
Evidence from Indonesia. American Economic Review, 97(5), pp.1611-1638.
Bernard, A.B., Redding, S.J. and Schott, P.K., 2011. Multiproduct firms and trade liberalization.
The Quarterly Journal of Economics, 126(3), pp.1271-1318.
Carlton, D.W. and Perloff, J.M., 2015. Modern industrial organization. Pearson Higher Ed.
Chung F. 2018, June 1. 'Online shopping tax punishes Aussie consumers? Retrieved from
https://www.news.com.au/finance/business/retail/turnbulls-online-shopping-tax-punishes-aussie-
consumers-how-to-avoid-the-amazon-ripoff/news-story/a9fc27c89f4f9c8ad933c34551e463df
Kokko, A., 2004. Markusen, JR: Multinational Firms and the Theory of International Trade.
Paul, E., 2018. Australia in the US Empire: A Study in Political Realism. Springer
Solomon, M., Russell-Bennett, R. and Previte, J., 2012. Consumer behaviour. Pearson Higher
Education AU.
Wacziarg, R. and Welch, K.H., 2008. Trade liberalization and growth: New evidence. The World
Bank Economic Review, 22(2), pp.187-231.