Beating The Australia Tax: Can The Government Do Anything To Stop It?

The Government's inquiry into local price gouging for tech seems to be going swimmingly, but now that the first hearings are over and the dust is beginning to settle, questions are emerging as to what the government can actually do to stop these companies charging Australians through the nose. Can the government actually stop industry gouging? We can reveal new information that says that perhaps it can.

The man who spawned the inquiry in question, Federal Member for Chifley Ed Husic, has said that he's disappointed major multi-nationals like Microsoft and Adobe don't feel the need to appear before the inquiry to justify the enormous mark-ups on their software, and I'm inclined to share in that disappointment.

It's almost like these companies don't feel like the inquiry is worth their time. After all, they show up to US government hearings at the drop of a hat. I said on ABC TV's The Drum earlier this week that it's almost like these companies don't feel like the issues surrounding the Australian market are worth their time.

Given that companies aren't co-operating directly with the government after a round of public hearings, can the IT Pricing Inquiry actually make a difference? Can the government stop the Australia Tax? From cursory observations, I'd say no, but there are gears moving behind the scenes that represent light at the end of this price gouging tunnel.

We've been chatting to sources close to the inquiry, and they've told us that one option that is being considered is changes to Federal competition law that will make it illegal for vendors to block an Australian's access to cheaper international prices for software if it is purchased via an online distribution method.

It is understood that companies would still be allowed to georoute users — that is, point them at Australian prices first — to Australian-priced stores, but the users would then have the option of changing their country to the US to take advantage of cheaper prices.

Further public hearings are being considered to discuss these issues with the industry.

Even if these measures don't get up over the long-term, the IT Pricing Inquiry has done worlds of good for awareness of the Australia Tax. More people than ever will now turn to other means of getting their software, hardware, gadgets and games if they know that the company they're buying from in Australia is looking to hit their hip pocket more than is necessary. It's public awareness of shoddy business practices that hurts these companies in the short-term.

The Immediate Damage

When Justice Mordy Bromberg ruled that Apple pay $2.25 million for claiming that the new iPad was 4G-compatible in Australia, he said that Cupertino had lost more than money in the case — he said that the company had lost some of its precious reputation that it relies upon to stay popular in Australia. This is true for more than just Apple.

It's the adoration of the public that keeps these companies in business. It's Adobe's position as a maker of software for professionals that keeps people buying outrageously priced copies of Creative Suite. It's an IT manager's need for quality that has them paying 100 per cent mark-ups on hypervisor software, and it's the consumer's lust for gadgets that has them lining up around the block for every new iDevice that's launched by Apple.

These companies trade on their image, and the more this inquiry can do to tarnish the image of those who don't comply and confess their crimes, the better in my opinion.


Comments

    Great write-up, thanks Luke. It's a big issue for Australian consumers, and I'm dismayed at the lack of response from major developers and manufacturers.

      Hahaha! For 10 years, all tiers of Australian govt pander to these companies and help to create monopolies upon which the country is totally dependent. No innovative attempts at ensuring competition or local innovation, nothing like Germany or Massachusetts, no way! Ironically we now listen to the same governments bleating away about how we are all getting ripped off. "Only now, at the end, do they understand". Golden :-)

    Of course they can. The Trade Practices Act can be amended to require pricing parity, say plus or minus 10% unless a specific exclusion is applied for or granted. If a company refuses to comply, ISPs are required to block their site until they do.

    I'm of the opinion that the Inquiry can actually do something. Our government is nothing if not time considerate - they won't do something if they don't think it's worth their time (just look at how long it took the R18+ thing to happen, as opposed to how quickly the carbon tax came into affect).

    I honestly don't think the government would have launched into this inquiry in the first place if it didn't believe it could actually do something about it. I think they can, and I hope they do once they have the information they need.

    This is my opinion:

    At the very least, those companies that were asked to appear at the hearing and turned it down should be automatically forced to charge Australians US price + GST and that's it (taking exchange rate into account of course). Sort of a "Okay you don't want to explain yourselves, so we're telling you what to do" approach. For those that do choose to explain themselves, they will need to come up with pretty damn good explanations to avoid the same order being issued to them.

    By the way, Microsoft didn't appear at the hearing but at the very least chose to make a submission in regards to the inquiry, which is more than what can be said about Adobe. I've got to wonder though what Apple is trying to hide by wanting to do theirs privately and off-the-record.

      Thing is, if the government can turn around a force a company to charge less or block access to their sites, those big companies just won't bother. People over here will continue to grey import the products and they get paid anyway. So what is the incentive? As far as I understand it, Apple products are only a little bit more expensive here, compared to the 100% mark up on some other products.
      It's the same with games, if steam has a US game for considerably less than the US one, then I'll look at different avenues to purchase said game such as Ozgameshop.com.

        "Thing is, if the government can turn around a force a company to charge less or block access to their sites, those big companies just won’t bother. People over here will continue to grey import the products and they get paid anyway. "

        That's exactly it though. If we import, then yeah they get our money, but they won't get AS MUCH as they would if we'd purchased locally.

          Not really the solution we are looking for here....

            Errr, it's exactly what we are looking for - price parity.

    I feel like I'm getting robbed with the creative cloud from adobe. I need these programs, and they work out cheaper for me to subscribe to the program rather to just buy them outright. US Price $49.99/mo, I could live with, AU price $62.99/mo, it's a sting, but I need the software.

    It's prices differences like this that encourages piracy..

    I haven't read much about this yet, but it seems to me that The government can't force companies to sell things here for the same price they are in the US or online. And if they can't do that, then they will end up enforcing a tax on online purchases to boost the retail sector and that we the consumer loses again.
    It's important to note that this has nothing to do with the IT or electronics industry. This problem occurs in almost every industry. Cars cost twice as much here (granted there are different regulations and right hand drive), Branded T-shirts, sports equipment etc... It's one thing to include the cost of extra freight, but it's another thing to double the price.
    Take a motorbike for example. Made in Japan, shipped to the US $12K. Shipped to Aus $20K. There is no regulation change, and no left/right hand drive conversion. So where is the difference? Does it really cost that much more to ship to here than the US?

      "Does it really cost that much more to ship to here than the US?"
      It's entirely possible that is is extra in frieght Australia is the end-of-line (EOL) our export market wouldn't compare with our import (my opinion) so it would be the same as a taxi fee because you're drop off point is not likely to net them a return fare, you the passenger then pays extra.

        the cost to ship anything to australia by sea is all relative to how much of a container you fill -- they are normally 20ft (32m3) or 40ft (64m3), and the price for that varies from $500 for shipments less than a container load (LCL) up to ~$5000for a full 40ft container (FCL). that's from anywhere in the world to any Australian port (the time it takes will vary depending on which ports are used).
        on top of that you have to add the taxes (10% GST) and duties (customs duty 5-17.5% depending on product), and port service charges, customs clearance charges, document charges, local delivery (ie from the port to your address).

        so it's really quite variable, but for an individual, shipping a house load of purchases would cost a few thousand, which is a paltry sum compared to what they would cost to buy, whereas a smaller single shipment is considerably less cost-effective.

        given that you could comfortably fit a dozen motorbikes in a 40ft container, it would be very cheap for a dealer to import them; but for an individual, the cost of importing would be anywhere from $4-10K depending on the compliance costs.

      It doesnt, anyone who would tell you otherwise has no clue.

      Given Japan, China, Korea, USA etc are all our major trading partners that send here everyday, its not even remotely possibly for a markup to be that high on transport.

      LEGO. biggest scam ever.

    If they are unwilling to comply simply remove their right to copyright/trademark protection under Australian law.... the flow of cheap knock offs will quickly force action. Sure it may/would cause a WTO case, but in doing so they will be forced (WTO court wise) to justify the pricing model.

    Google Nexus 7 was just released. If you go to the play store it says $199 for 8GB. when you click "buy it" you are taken to the Australian site where low and behold the price magically $249 for the 8GB and $299 for 16GB. Isn't that bait and switch or just plain false advertising under the TPA? Why do I pay $50 + shipping more? I say kick them in the guts. Allow a class action including every customer to recoup the $49 difference.

      Microsoft do the exact same thing when applying for an MSDN subscription. They show you the US price right up until the page where it shows the item in your shopping cart, at which point it shows you the (almost double) Australian price. B@st@rds.

      this is one of the few cases I don't mind.

      When you include the wall adapter and GST and the fact that google products have additional features available in Australia which they need to recoup some how.

      it's not perfect yes, and I'd like it to be exactly the same, but at the end of the day the $25-$30 isn't my biggest complaint..

      Given we got first release and that sort of thing...

    Of course the government can do something.
    If corporations like Microsoft and Adobe are so arrogant that they believe that they can risk being disrespectful to our government by refusing to particpate in this enquiry, then the government should "ground" them a bit.
    Excluding them from government supply contracts for a couple of years should do it.

    I think the only thing the government can do is force international stores to charge GST if posting the price in AUD or setting a separate price for us. It's not a positive move as it will only increase the prices further but I don't think the end goal is to reduce price for aussies. I think it's to stop the deluge of money heading overseas and away from the local retail sector. This would go a long way to doing it.

    I hate this idea as it's only going to force prices higher - but it does secure more government funds and help with the local retail slump. But I know I'll be joing the other savy shoppers in joining a US/UK mailing service for on forwarding of products.

      I don't think there is any legal way that Australia can interfere in another countries tax affairs.

      Using your logic, there then, would be nothing to stop the USA from forcing Australian mining companies to collect a tax on exported minerals, bound for USA, that are in competition with US mining companies and being sold at much lower rates in the USA than the domestic markets can meet.

      This inquiry after all is also talking about physical goods being purchased over seas and imported, not just software and other online media.

      This is BTW also known as an import or excise duty and their is a system in place for this already, the government just isn't willing to be labelled as "protectionist" so they will deflect the blame onto foreign corporations instead of simply raising tariffs to stem the flow of our money leaving the country.

    The govt have to pretend they're doing addressing affordability for something, and it's a whole lot easier to pick on the technology sector than automotive or the "baby boomer retirement fund" issues around affordable housing.

    It's business, plain and simple. The Australian Government can't police overseas companies policies, and the Australian market isn't big enough to ask for special concessions.

    Also with the pricing of things like the Nexus 7 for instance the pricing is very competitive. The difference in price can be attributed to freight + $AUD + GST. Most US states have different tax laws, so tax is never usually included. Where as in AUS everything is priced GST inclusive.

    Introduce an International Pricing Parity Commission with the power to investigate, audit and refer to DPP. If pricing is within a "fair" range of the overseas pricing all is fine, no action. If not, they risk a ‘Please Explain’ letter and then detailed investigation and audit. If any proven wrong doing with pricing, the distributor will be pushed to the DPP for further investigation and prosecution.
    For those organisations that are gouging, in the short term their prices will go up (or margins down) to reflect the additional accounting and legal fees they will now incur in doing business… but eventually their lack of market competitiveness, extra hassles of investigation and the stigma of a court appearance will force them into pricing fairly, or out of business. It would effectively be an optional tax on their business that their competitors may not incur.

    I'm sure this is all about the Government losing out on GST income with so many Australians now buying from overseas

    I'm sure this is all about the Government losing out on GST income with so many Australians now buying smaller items (ie under $1000) from overseas.

    I'm grateful that the issue is at least being looked at, and hope that we gain access to fairer pricing in future, but I would be surprised if this inquiry was in effect due to the government's compassion for the Aussie consumer.

    In saying that though, I'm not overly convinced tech pricing here is any less affordable than in the US when you take.into consideration average household income rates here in Australia. We earn much more than the Yanks on average.

    When are people understand we have this quality of life for a reason! Because we pay for it!!! Australia's population is tiny and hence our buying power. This along with our high cost of living and therefore cost if doing business is required for businesses to provide local product and service.

    Do you little consumers sitting at home in front of your computer think the cost of doing business is 10% on top of cost? ...your kidding yourself.

      OK, please explain to me how allowing me to download the exact same piece of software or media from Server A as opposed to Server B (both of which are probably overseas anyway) increases these corporation's costs by 200%. Please, go ahead, I'm all ears.

      By the tone of your argument and those poor grammar skills, I'd have to believe you weren't actually born here...

      Australia has a lot going for it, but to say we are 'rich' is a wild overstatement;
      quality of life is determined by many, many things, of which the money you spend is but a small component;
      small population = smaller buying power (it is not clear if that is what your statement was alluding to);
      the 10% GST we pay (for most purchases) is just one of a multitude of different taxes, it does not add anything to 'the cost of doing business', that money ultimates goes into the government coffers, whilst profit margin is what pay for the cost of doing business.

      your sweeping statements make it clear you haven't been in Australia for very long -- you should do more research.

    It's the reason why a lot of people torrent. We simply get ripped off. If we got treated fairly less people would torrent.

    SHAME on the government for trying to sneak in disgusting, anti-freedom "price controls". Companies are free to charge what they like, without government interference, while consumers are still free to buy wherever suits them best, despite efforts by companies to get us to pay higher prices here. Look, higher prices aren't good, but price controls are far worse: welcome to Commiestralia if that happens.

    There are quite a few democratic countries that have parity pricing laws aswell as tarifs imposed. The US free trade agreement is free for anything we don't actually compete on, ie our major exports. Its pretty one sided, all that for us not having our own military of sufficient size and renting their (U.S.) nuke "shield". Why do people bring up irrelevant information, we are far away and have relatively a small population, technology has come a long way since shipping was that expensive and time consuming. Companies will not like being forced to surrender free money, the Australia tax, but they wont go without the profit generated here either because of its loss.

    The government are looking at this all wrong, who gives a rats arse if Adobe wants to charge 3x as much in Australia.

    What they should be going after is the protectionist deals these companies make, all this crap should be made illegal, we have a FTA agreement with the US, not allowing US suppliers to supply Australian companies is not Free Trade, if it isn't breaching the FTA then the FTA needs amending, take it onto the national stage in the US...during an election year to boot.

    What's that America, we have followed you into every war you have started since WW2 and not only do you like to call Israel and England your greatest ally (WTF!) but you think it's okay for you companies to be protectionist arseholes and gouge the country that actually is your greatest ally (because we always support your fucked up wars and you are an aggressive country who loves war).

    Obviously 99% of the commentators here have never run or business or understand anything about how to run a profitable business. Running a business in Aus costs a LOT more than running one in the USA for example, electricity is dearer, phone calls and phone lines lines are dearer, petrol is dearer, rents are higher, magazine and newspaper advertising is dearer, wages and penalty rates are higher etc etc and so on and so on. Ever heard of "cost of sales people?" Taking Apple as an example (and they are actually not that bad), if it costs Apple $500 say to sell an iphone here (manufacturing, transport, advertising, staff, shop rent, shop electricity etc) and they want to make $50 profit on each sale, it costs you $550 to buy it. If it costs them $400 to sell it in USA, you pay $450 for the same $50 profit to Apple. What the Gillard government is trying to do is completely ignore all the reasons that it costs a lot to run a business here (because Telcos, Landlords, Unions, Transport companies, utilities etc ream us all and the government strangles us with regulation, taxes and red-tape) and try to say "oh aren't these foreign IT companies naughty". It's the governments fault because they have not structured a competitve economy here.

      but a digital platform like Steam for example doesn't require those things. Which is what I'm most concerned about - I understand the higher cost of operating here in Australia but when digital distribution costs the same or more than physical copies its a huge problem.

      Steve F - we're talking about digital distribution of digital goods mate. By all means, if I want to go to go down to my local Hardly Normal or Horrors Technology and plonk down money for a physical box copy of Creative Suite or MS Office, then local telco, landlord, staff and all the other costs you and others on your 'side' of the argument keep harping on about do indeed apply, and the pricing is *probably* justified. But if I want to download my digital copy of CS direct from the Adobe US store where it doesn't touch any Australian hands (until it lands 'on' my hard-drive), then those same costs can hardly be said to apply, can they ? Oh sure, sure, they need to 'subsidise' the costs of running their Australian office (with it's high rents, telcos, blah blah blah) but you know what - either you absorb it as a 'normal' corporate cost of doing business in Australia (and maybe raise your prices across the board - but do it equitably), or close the damned Australian office and let us buy it from your US site. I mean jaysus ... 90% of all these companies have their support staff located in India, the Phillipines and Malaysia anyway. The Australian office will handle marketing (haha), and (if they do it here at all) any 'localisation' work our market needs could EASILY be farmed out to one or two (it's not like we're talking another whole language or alphabet) Aussie expats (there are plenty) working in 'The Valley' back in the good old US of A.

      Seriously - I went to the CS6 roadshow last week (which was pretty awesome) - when I went to ask one of the Adobe folks about the pricing disparity during the break, they told me I should speak to the head of their marketing team. So probably their OWN people 'on the ground' are given the mushroom treatment !

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