Personal import duty hikes will do more, not less, to kill retail

With their support of the personal duty hike retailers are stubbornly creating the exact opposite environment they desire.  All they're doing is increasing the competitiveness of local import firms, not decreasing it.  Today, it's a huge hassle to buy online, a path only chosen by those dedicated to lower prices or greater selection.  Tomorrow, it could be so easy that the consumer may well be able to buy online without even knowing how, with all the hassle taken out of the equation.  The day that happens, retail as we know it will be near dead and all the duty hikes will have done is accellerate our pace towards achieving it.  

It's harrowing to watch as so few see the implications that the hike on personal imports likely will do more damage than good, much like the hike at the airport did.  The intent is well meaning, but the implications of the change may not be well understood.  It is suspected that we'll see a few things result from this action.  

  • People will take to boycotting local retailers and buying online out of spite due to the Chamber of Commerce's support for the hike on personal imports.
  • The duty hike will kill demand for some importers causing more job losses that will not be offset by hires by local retailers.
  • The government will overestimate duty revenues
  • The duty hike will encourage more entrepreneurs into the import business who will make it even easier to import items on demand.  

Before I plead my case I think it's important to recognize that I'm not against an across the board hike in duty rates.  I've long advocated on this blog a hike in duty rates across the board in order to discourage the rampant addition to consumption this island suffers from.  Even today, with our rapidly rising debts duty hikes could be a good thing to help combat the problem.  However, what I don't support are protectionist policies to keep local retail afloat, not because they aren't well intentioned but usually because when you mess with the market you create unexpected side effects that you didn't originally intend for.

Ms. Elaine Murray, director of the Irish Linen Shop recently penned a letter to the editor arguing in favor of the hike on personal import duties.  The gist of her arguement, if I can do it justice, is that online shopping and discretionary spending is killing local retail.

The truth is that our global and local recession necessitates the increase in this tax and frankly, it is time to protect the local bricks and mortar retailers from any more closures which will certainly translate to higher unemployment. This is not a mandatory tax. It is a tax on your discretionary spending overseas. It is fair and it’s your choice. Keeping Bermuda dollars in Bermuda will keep Bermudians working.

The problems that I find with Ms. Murrays arguements are that she depends on three assumptions, that our local recession is largely caused by the global one (a belief not shared by this blog), that online business is responsible for the decline in retail and that brick and mortar businesses should be given special concessions over other businesses.

The belief that the local recession was caused by the global one is one which has frequently rebuted by this blog.  At it's most basic, when you crunch the numbers on the declines in the population of non-Bermudian workers, they add up to significant declines in local spending and tax revenues.  As has been argued since before many people believed the island would even enter a recession, it is out local policy which has been the primary factor behind our recession and the decline in guest workers, not global elements.  This needs to be firmly understood and rectified before we have any chance at digging ourselves out of this recession.

Next we can move on to the the assumption that online business is killing retail.  The first problem with this assumption is that we simply don't have the numbers to support the arguement for online purchases killing local retail.  It's meerly a guess.  The statistics department produces no reports on online and mail order purchases, only resident purchases abroad brought in via the airport and resident imports overall.  This poses a considerable problem as it indicates we're choosing policies based upon assumptions and not facts.  Considering the recent focus on "reality" based decision making, this seems like a glaring flaw, regardless of the outcome.

As suggested above, the decline in non-Bermudian workers is the prime culprit for declines in retail sales and online purchases are simply a correlation to local retail declines, not a primary causation.  It is very important to understand the difference.  This blog made a pretty solid attempt to approximate the impact of the decline in non-Bermudian population on the local economy and it makes for a compelling arguement.  Again, if we can regrow our non-Bermudian population, we can increase local spending and in effect, save retail.  Attacking online shopping is likely to not have anywhere the impact that retailers or government are hoping for.

Finally, let's challenge the notion that we should be saving local retail and putting it ahead of other businesses.  This is another fundamentally flawed arguement, one where people believe it is better to use protectionist policies to prop up an industry rather than strive for efficiency.  This often leads to disaster.  

One of the big questions that arises is why are retail jobs more special than other industries?  In our history we built ships, grew onions, farmed our own food and farmed flowers among other things. These industries are all gone now.  Where would we be today had we imposed taxes to protect jobs for these industries in spite of progress?  Would we still likely to be prosperous building ships or growing onions?

If we're protecting jobs for retailers, why stop there?  Why aren't we taxing all imported food at 25% to protect local farmers and fishermen?  Why aren't we taxing the internet and cell phones because of the impact it has on local telephone companies and media companies? Indeed, jobs are being lost there too.  Why are we not looking at every industry losing jobs and coming up with means of taxation to save them?  Likely because it wouldn't make much sense to do so.  Landlines are as much a thing of the past as shipbuilding.  While it is wholly unfortunate to watch as jobs decline in servicing and maintaining them, it would be entirely self destructive to attempt to protect those jobs by taxing progress.

We're not taxing these things is because we'd damage progress to do so and eventually get left behind and thats the reason why we shouldn't bail out retailers today.  The challenges for brick and mortar businesses simply aren't limited to Bermuda.  Retailers the world over are having to rethink their models and adapt to provide better service.  This isn't the first time it's occured, with retailers having faced the onslaught of catalogues and tv shopping.  The successful ones survived and adapted, the unsuccessful, rightfully failed.

The greatest problem with the proposed duty hike is that it will likely lead to an even worse situation for retailers rather than a better one.  It is harrowing to watch and realise that they simply don't see it. Duty hikes will take make importing models even more competitive.  People who today suffer through the hassle of ordering something online, coordinating payment, shipping, forwarding, and duty by themselves do so only because it is easier to do all that than buy locally.  It is only the very committed who will trudge through this path to save a few dollars or attain that nearly unattainable item.  

Tomorrow will be very different.  The duty hike creates opportunity.  All those who buy online today won't be disinclined to do so, but they'll likely search for alternatives.  They'll turn to enterprising import firms who will import on their behalf to take advantage of cheaper duty rates.  Those firms are being positioned to take advantage of the duty hikes to make ordering online and importing not only possible, but far easier than it is today.  

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2 thoughts on “Personal import duty hikes will do more, not less, to kill retail

  1. Denis, you make too much sense! The goose, who laid the golden eggs twelve or so years ago, was taunted, threatened and her eggs were stolen as soon as she laid them. Finally, she got the message, because she was not born here, it was clear that she was not wanted here either. Oh, they wanted the eggs, but not the producer. Our immigration policies of the past decade or so setup a system where too many young, bright, talented and productive foreign workers were verbally, if not physically attacked and told to beat it; to go back where they came from.
    So, like the Golden Egg laying goose, many simply left and are now the back bone of improving economies in some of our competitive islands. And what seems to have been missed by government, many took their highly technical jobs with them.
    Finally, government is broke – we the tax payers are slowly being squeezed by government to extract as many dollars as possible and in the process, there are growing lists that simply have no tax dollars to pay…
    I’m amazed that our government cannot see and comprehend what is going on in Europe. Too many E.U. States are in a deep, narrow, financial hole that they dug themselves by spending what they did not have; it is unlikely that the rest of the E.U. can extract them without critical damage to the Union.
    So, whatever tax is implemented, the naked and bare truth is that there are less and less citizens who will be able to buy brick & mortar merchandise, and or order online; they simply do not have the funds and daily, there are those who simply cannot find the money necessary to by the staples for life.
    I fear that as we continue to spend what we simply don’t have, more and more tax payers will simply fall of the tax rolls… and those like you, with good jobs and disposable incomes’ will be forced to pay even more, until, like the golden goose, the local brain drain picks up and leaves… then what?
    I read yesterday: ‘when government’s steal from Peter to pay Pall, they can count on Paul’s support!’

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