It's early days, but Amazon may have misread the Australian market

It's early days, but Amazon may have misread the Australian market

Amazon spends nearly three times as much as the entire Australian government on research and development. Yet collecting GST from offshore merchants selling products into Australia has proved too complex even for it.

That's one way to view the announcement by the e-commerce behemoth on Thursday that it would limit the ability of local consumers to buy products through its US website - a decision that will significantly reduce the number of products available to Australian Amazon users.

Workers gather items for delivery from the warehouse floor at Amazon's distribution centre in Phoenix, Arizona.

Workers gather items for delivery from the warehouse floor at Amazon's distribution centre in Phoenix, Arizona.Credit:Reuters

So, should we be angry at the government for imposing a fiendishly complex and cumbersome tax on a company many expected would bring a bonanza of low prices to this country? Or is this yet another example of a tech giant circumventing an attempt by a government to claw back some tax from its operations?

Unless you are an ideologue obsessed with lower taxes, or a partisan who hates the current government (a Venn diagram of these two groups would make for interesting viewing), it shouldn't be hard to conclude that this one's on Amazon.


The company's shock announcement came just hours after Mary Meeker, the highly respected analyst from venture capital firm Kleiner Perkins Caufield & Byers, delivered her annual "Internet Trends" presentation in the US.

One of Meeker's slides shows how Amazon is rapidly pulling away from other American internet giants when it comes to funding innovation. It spent about $US22.6 billion ($30 billion) on research and development in 2017, according to S&P Capital IQ. That is nearly three times what the entire Australian government is poised to spend on R&D this financial year - $10.7 billion.


That's equal parts fascinating and troubling.  But it also means the idea that Amazon couldn't figure out a way to comply with the government's tax changes without such drastic changes stretches credibility. Especially when eBay doesn't seem to be at all fazed by it.

The other way to view the announcement is that it again shows the incredible difficulty governments face in their attempts to claw back taxes from big tech companies that are increasingly dominating the world economy.

"It's a fundamental problem," says Andrew Charlton, director of AlphaBeta, an economic consulting firm, and a former adviser to Kevin Rudd. "We have a system of taxation that is national, and economies are becoming increasingly global.  And we are in the eye of the storm of that transition."

Impose a tax on something, and it will lead to bad outcomes for consumers who purchase that thing. (At least when viewed through the narrow prism of prices - or in this case, access to a wider variety of products).

Yet consumers are also citizens, who depend on government services, and the legislation that Amazon claims forced its hand did have bipartisan support.

"We have bifurcated mental accounting on this issue," says Charlton. "The idea that multinationals should pay their fair share of tax is well understood by people, but on the other hand, they don't want restrictions on things. It's a very convenient and all too common human disconnect".

It very much looks as though Amazon is determined to direct Australian users to its .au site - and then, fearful of a consumer backlash, it has tried to pin the blame on the government (without directly saying it) by questioning the "workability" of the legislation.

Companies blame governments for decisions they make all the time. Sometimes it is justified. Sometimes it isn't. But the difference in this case is that tech companies like Amazon have an aura and glow about them that other giant corporations (think big banks, oil companies and miners) utterly lack. Which means they are better at doing it.

So what is behind the decision? It could be designed to boost awareness of the imminent launch in Australia of Prime - its juggernaut subscription service that offers expedited deliveries and other perks. Or maybe it's a sign the local launch just hasn't gone that well.

It’s still early days, but adds to the impression that Amazon, a company that professes to be obsessed with its customers (and has demonstrated that overseas), has misread the Australian market.


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