In demanding the lowering of the GST threshold for offshore purchases, the states and retailers want more cash from the federal government or consumers.

Proposals to reduce the GST threshold on goods purchased offshore to as low as $25 would transfer revenue from the Commonwealth to the states to cover the high cost of processing low-value items — or punish consumers by adding to the cost of parcels above and beyond the GST.

And it would amount to protectionism for lazy Australian retailers.

As Treasurer Joe Hockey meets his state and territory counterparts today, there’s a renewed push both from state treasurers and from retail lobbyists to lower the GST threshold on low value packages. The usual retail suspects, such as Myer’s Bernie Brookes and the inevitable Gerry Harvey, are backing a push from the states to lower the threshold for imported purchases from $1000 to $25.

The states — hit by the slow growth of GST revenue as Australians save more and switch to non-GST liable consumption — want to tap into rapid growth (off a low base) in online purchasing by forcing consumers to pay GST on offshore transactions.

But as Treasury explained in a report in July 2012, collecting more GST comes at a cost, and the lower you set the threshold, the higher the cost of collection, until it overtakes the revenue gained from collection. There’s thus a curve for the ratio between collection cost and additional revenue.

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Once you set the threshold below $100 (where revenue collection is already hideously expensive — you lose 2 in every 3 dollars you collect), the net revenue rapidly diminishes to nothing and you start having to spend more on collection than you get from revenue. Moreover, this is for international mail only — air cargo revenue is more expensive to collect.

There’s one way for governments to avoid collection costs, and that’s to make consumers pay not merely GST, but the additional costs of processing their packages and collecting the revenue. This is the UK approach and Choice has shown this could potentially blow out the cost of a $20 package to more than $35. It amounts to double taxation on consumers.

That’s fine by retailers — what they want is an internet tax, to discourage Australians from shopping online overseas and drive them back to local retailers’ poor quality, high-price offerings. As has been repeatedly demonstrated, however, the price gap between Australian retailers and offshore sites for the same products is far greater than a 10% GST and, likely, any processing costs governments try to slap on consumers. Lowering the threshold below $100 would, in effect, be a tariff on imports.

The states don’t mind either — just so long as they get their hands on a few hundred million dollars of additional GST revenue, given they don’t have to bear the cost of collection.

What Treasury’s analysis doesn’t grapple with is the extent to which either offshore providers — like Amazon, which has fought long battles with US states over efforts to collect taxes — or Australian consumers will co-operate with tax collection efforts. Effective collection will depend on extensive government surveillance via either a consumer’s internet purchasing history or physical inspection of mail. How happy are you to have the government examining what books you’re ordering from overseas?

That’s before you get to the sort of problems that the men and women (well, woman) sitting around the table with Joe Hockey don’t understand: how will you levy GST on fast-growing download purchases — movies, games, software, books? If sites like Netflix or music streaming services open Australian sites, GST can be charged. But if you’re buying online direct from a provider offshore, there’s no way to levy GST unless the provider is willing to co-operate.

And expanding the GST to cover low-value goods would be a blatant breach of the Coalition’s election commitment not to change the GST while in office.

The GST was supposed to be an efficient, easily administered and low economic impact tax. The states and retailers want to turn it into an expensive means to help prop up a sector that after generations of gouging captive Australian consumers, can’t handle competition.