Barry Flanagan reports on the political tug-o-war that heralded Australia's Goods and Services Tax and its impact on retailers With an army of thousands, food and liquor retailers around Australia changed millions of price tickets on the night of June 30 for the arrival of a 10% Goods and Services Tax ­ the most sweeping changes ever implemented to the country's taxation system. The GST brought Australia into line with most of the Western world with a value-added taxation on goods and services, and culminated a debate that had raged for more than two decades on the need for a broader indirect tax base. With the costs of implementing the change to a GST, including new hardware, software, price ticketing and training, running into the hundreds of millions of dollars, the potential nightmare at the checkout did not happen and customers took to the change virtually without a complaint. While some retailers did experience computer software problems, the industry was generally well-prepared and there was little angst by customers when it came to paying at the checkout. The biggest complaint to come out of the GST was not the tax itself, but the cost of gearing up for it store-by-store, with the Liberal Coalition Federal Government oblivious to the enormity of the hardware and software costs that had to be borne by retailers to be able to operate under the new tax structure. In the lead-up to the GST the Federal Labor Opposition, led by Kim Beazley, was so confident that the new tax would blow up in the faces of Prime Minister John Howard and Treasurer Peter Costello, that he promised an unspecified roll-back of the GST if Labor was elected in next year's election. However, virtually within days of the GST at the checkout, Beazley had gone quiet on his roll-back promise, knowing full well that the Australian consumer has taken to the changes almost without a complaint. With the GST linked to a total overhaul of personal taxation rates ­ a person on $A35,000 (£13,700) a year received a tax cut of $A20 (£7.80) a week ­ and the removal of the cumbersome Wholesale Sales Tax of between 12% and 32% or more on many goods and some State-based taxes ­ most consumers believe they are now better off. The GST was a key plank in the re-election of Prime Minister John Howard's government, but almost came unstuck mid-last year when the Australian Democrats threatened to torpedo the legislation in the Senate unless the government exempted food from the tax mix. With food initially part of the GST package, food and liquor retailers and manufacturers had welcomed its inclusion under the 10% GST rating as it simplified all the processes up to the actual sale, but consumers loathed the idea of paying tax on food. With the intervention of the Democrats the industry suddenly found that it had to contend with a two-tier GST taxing system because the federal government was not prepared to totally sideline all food out of the tax net, keeping the tax-free status to "basic" food at a cost of more than $A3bn to government revenue. This confusion of what food was taxable and what was not took almost a year to resolve and it was only two weeks before the introduction of the GST on July 1 that the Australian Taxation Office, in association with the food manufacturers' Australian Food and Grocery Council organisation, that an A to Z of taxable and non-taxable food was publicly released for retailers to digest and then make the necessary pricing changes to their master files. Retailers found that while apples, oranges and bananas were tax free, they became subject to the 10% GST if sold as a platter.And to further confuse, white milk was tax free, but flavoured milk was taxed. Generally, how the food was packaged determined whether or not it attracted GST. Foods that competed against takeaways and restaurants, required refrigeration or freezing and were sold as a prepared meal, were taxed. It's not surprising that the complexity of the GST arrangements, whereby plain, flavoured and goats' milk yoghurt are not taxed, but drinking, frozen and self-serve yoghurt is, has caught out retailers, especially as typical Australian supermarkets can have more than 20,000 stock keeping units (SKUs). Franklins, Australia's third biggest supermarket retailer, and part of the Hong Kong-based Dairy Farm group was publicly humiliated by prices watchdog, the Australian Consumer and Competition Commission (ACCC), for apparent GST pricing violations. The representative body for the country's major retailers, the Australian Retailers Association, reacted sharply to the "outing" of Franklins, claiming that in discussions with the ACCC and its chairman Professor Allan Fels, and the federal government, they were told that retailers would not be sanctioned or pilloried publicly for inadvertent errors. But on July 24 the ACCC publicly cited Franklins for 17 GST pricing violations and Franklins agreed to rectify the mistake by publishing full page newspaper advertisements followed by a three week refund period in the form of an 11% price reduction on the relevant products. The ACCC claimed it received more than 100 complaints before it began its investigations, but Franklins' chief executive Ian Cornell disputes this, claiming that, three weeks into the GST, the company had received 126 calls to its consumer complaint line, and only 37 related to pricing. During that period the company cleared more than nine million transactions at the checkout. The supermarket industry, the ACCC and the federal government had, prior to July 1, established a mind-set among shoppers that the retail industry, whether deliberately or inadvertently, would rip-off customers. The media bombarded consumers with the message that the authorities would monitor prices for at least three months, and urged customers to ring a complaints hot line if they found pricing errors. Paul Tebutt, managing director of 7-Eleven, said the behaviour of the ACCC and the government towards supermarkets was "disgraceful". "Can you imagine Woolworths getting away with prices higher than Coles or Franklins. It just doesn't happen. Franklins would have about 18,000 lines, but managed to get 17 of them wrong. I take my hat off to them." Within days of the publication of Franklins' GST pricing apology and refund offer, the ACCC decided not to prosecute. And while the supermarket industry interpreted the ACCC backdown as an assurance that pricing mistakes would be tolerated during a short honeymoon period, Franklins' public image centred around its marketing theme of "We put more in your trolley for less" had been seriously compromised. Woolworths, Australia's largest food retailer with annual supermarket sales of more than $16,671m, has estimated that it cost it $53m before tax to implement the GST while the more diversified Coles Myer group has put its GST costs at around $60m. While those charges were easily handled by retailing monoliths, the small independent food and liquor retailers found the imposition a considerable drain. Martin Lewis, who owns a supermarket in the Queensland town of Mareeba, estimates that GST compliance cost him at least $A60,000. And the supermarket owner and chairman of the independently-owned United Star supermarket group, has put his personal costs at between $60,000 and $70,000, including $A10,000 in staff wages and for hardware and software for four checkout lanes. This was typical of costs to independent operators. Mr Little's 4,300 sq ft (9,000 line) supermarket opened at 7am as usual and while the shop didn't show any signs of a change, except for different coloured labels, half the staff had been working overtime until midnight to get everything ready. "The work in preparing the actual store computer systems was very difficult. "My biggest concern was the volume of labels; the time it took to physically do it and the number of hours it took to physically make the changeover. I don't think that the powers-that-be realised how many actual man hours were involved in what we had to do." Barry Flanagan is the publisher of Retail World {{DISPATCHES }}