Evaluating the Economic Impact of Online Shopping Tax in Australia

This essay critically examines the impact of the online shopping tax imposed by the Turnbull government on Australian consumers and retailers, drawing upon classical and neoclassical economic theories. It argues that the tax punishes consumers by limiting access to a variety of products and potentially hindering economic growth. The essay further analyzes whether the tax enhances the efficiency of Australian retailers and its effect on the economic surplus, concluding that balanced taxation can positively influence local sales and reduce surplus. It also discusses the potential competitive disadvantage faced by Australian retailers if multinational corporations are not subjected to the same tax obligations, which could lead to business closures, unemployment, and a weakened economy. The analysis is supported by relevant economic theories and academic references, providing a comprehensive overview of the tax policy's implications.

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Question 1
According to the article, I strongly agree that the Aussie consumers are highly punished by
the online shopping laws imposed by the turnbull government as stated by the Australian
taxpayer alliance. The government has also denied the local shoppers access to variety of
products and services available and yet allow international shoppers to access the same type
of products. Such laws punish the consumers both directly or indirectly since it affects the
economy as a whole in the long run. According to classical economic theory, it states that
each person always maximizes on their preferred functions or activities they consider
important despite the difficulties they encounter. Where in this case, the Aussie consumers
have to struggle in order to access the products they need locally, despite the high cost due to
high taxation cost imposed by the government for various products of its online companies,
Roberts (2011)
The companies have to adhere to the laws so as to last longer in the online shopping industry.
The companies only survive in the industry by charging its products at a slightly higher cost
compared to other online shopping companies outside Australia. The economy on the other
hand will be affected since not all Aussie consumer strain to get products locally which are
expensive, but prefer to purchase the products from other countries like the US and pay for
shipping cost. This results to more tax being paid to other countries which in the end lowers
the economic growth of Australia. That is because demand of products goes down and the
country ends up experiencing surplus.

Supply and Demand
P= Price
D= Demand
Q= Quantity
S= Supply
The classical theorist also believes that, for an economy to remain stable, the government
should completely stay out of it. The government should not interfere with monetary value by
imposing strict monetary policies that in the long run will result in price and wages
instability. This is because current markets are very competitive, and any slight interference

in price will cost the economy of the country at a great extent. If the market is interfered, it
automatically results to punishing consumers.
Neoclassical economic theory emphasises on exchange value which should be determined by
demand and supply and not only the cost of production. The government in this case have not
considered the need and demand of the Aussie consumers for various products before
imposing strict laws to local retailers. Following the theory of neoclassical economic, the
government should have first considered the demand of the local consumers who contributes
greatly to the economy of the country. Pentecost and Turner (2010) the government should
have also consider the quantity of supply that the Australian retailers have which needs to be
sold before making such decisions and allowing multinational to take over its local retailers.
This has greatly resulted to suffering of the consumers and retailers as well.
In addition, according to neoclassical economic theory, every individual in the industry have
the right to access information and also make decisions. This assumption helps to have a fair
final decision for every party involved, that is, the consumers, government and the retailers.
Ability of individuals to maximize the value of output will eventually affect productivity as
well as determining the resource allocation and distribution of income, Oechslin (2010)
Question 2
The online shopping tax makes Australian retailers more efficient because, consumers will
not largely rely on international online shops but they will also consider the local online
shopping industry, since tax imposed to both multinational and local shops results to same
price for products. Consumers only opt for purchasing products online from other
international shops if they find out that it is expensive to purchase from local shop, Morita,
Takatsuka and Yamamoto (2015).But when tax is imposed to both local and international

shops, then both retailers will have to sell their products at a higher price. Consumers will
therefore decide to purchase locally, since there will be a slight difference in the prices or
there might be no difference at all, hence making the Australian retailers more efficient, Giri
and Roy (2011)
The online shopping tax affects the surplus of the economy in a positive way. The country
will avoid experiencing surplus if online shopping tax is imposed. Most retailers will be able
to sell more if taxation is balanced and both local and international retailers are able to offer
same price or slightly difference prices for their products. When local retailers are able to sell
more, there will be less surplus in the economy and loss will be avoided by the retailers. This
in the end leads to growth of the economy since there will be balance in demand and supply,
Dutt (2017)
Inelasticity in demand results to high taxation to consumers.

Question 3
If online shopping tax policy is not emphasised and multinationals are not forced to pay their
tax share, Australian retailers will experience a great competitive advantage from the
multinational retailers, Carter (2009). They will be able to sell their products at a lower price
since they will not incur much cost on tax. Most of the Australian consumers will definitely
prefer purchasing from multinational retailers giving them a chance to be highly competitive.
The Australian retailers might also close down if they experience surplus for a long time. If
most consumers prefer purchasing from multinational retailers, the local retailers will
therefore end up not having customers and the products they have in store will end up being
surplus. This in return results to losses that eventually lead to the closure of their respective
online shops, Cai and Zhang (2017)
The economy of the country is also prone to face negative impact in case such policies are
not put in place early enough. If local retailers close down their businesses, the economy
growth will as well slow down. If the economy of the country is negatively affected the
retailers morale will also be weakened. Most individuals will therefore give up on investing
on online shop in the country resulting to unemployment. The high rate of unemployment
also results to lower living standard and will make the country remain behind in
development.

References
Cai, F. and Zhang, X. (2017). Structural Reform for Economic Growth. Australian Economic
Review, 50(4), pp.450-459.
Carter (2009). Managers Empowering Employees. American Journal of Economics and
Business Administration, 1(2), pp.41-46.
Dutt, A. (2017). HETERODOX THEORIES OF ECONOMIC GROWTH AND INCOME
DISTRIBUTION: A PARTIAL SURVEY. Journal of Economic Surveys, 31(5), pp.1240-
1271.
Giri, B. and Roy, B. (2011). Supply Chain Coordination with Price-Sensitive Demand Under
Risks of Demand and Supply Disruptions. Technology Operation Management, 2(1), pp.29-
38.
Morita, T., Takatsuka, H. and Yamamoto, K. (2015). Does Globalization Foster Economic
Growth?. Japanese Economic Review, 66(4), pp.492-519.
Oechslin, M. (2010). Government Revenues and Economic Growth in Weakly
Institutionalised States*. The Economic Journal, 120(545), pp.631-650.
Pentecost, E. and Turner, P. (2010). Demand and Supply Shocks in the Caribbean
Economies: Implications for Monetary Union. The World Economy, 33(10), pp.1325-1337.
Roberts, M. (2011). SENIORITY WAGES AND ECONOMIC GROWTH*. Japanese
Economic Review, 62(4), pp.431-443.