Amazon won’t kill Aussie retailers but fast-moving evolution might

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The Australian retail industry is becoming increasingly digitised, especially with the entry of Amazon, a well-known online retailer from the US. The expectations of shoppers are changing rapidly, with service becoming more important than the merchandise.

How does this relate to the HSC syllabus?

  • Amazon’s entry into Australia is another sign of increasing globalisation (HSC Topic 1)
    • Globalisation refers to the increasing integration between different countries, and the increased impact of international influences on all aspects of life and economic activity.
    • Amazon is the largest internet retailer in the world, originally from the United States. Amazon Prime is a subscription service which allows users access to quicker delivery, which is expected to launch in Australia mid-2018. Many believe that Amazon Prime’s entry into Australia will significantly harm the profits of local brick-and-mortar and online retailers.
    • As technology improves, globalisation accelerates. Better software, communication and shipping technology has made it easier for Amazon to enter the Australian market.
  • The long-term change in consumer’s shopping behaviour, from brick-and-mortar to online, is a form of structural change, which has effects on different parts of the economy.
    • Physical retailers have been finding it increasingly difficult over time to make sales as consumers move online. Jon Stine, Intel’s global head of retail, believes that retailers will need to “change or perish”.
    • Consumers’ expectations have been altered by online shopping. It is easier to find information about products online as well as make payments, compared to physical shopping. Companies need to keep these expectations in mind when doing business.
    • This type of structural change can cause structural unemployment within the retail industry. That is, the lack of profitability of physical retailers will lead to loss in jobs. (HSC Topic 3)

Axing negative gearing would boost economy and home ownership, RBA conference paper finds

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An RBA conference paper has found that axing negative gearing, a popular tax policy, would improve the economy. Read the preliminary paper here.

How does this relate to the HSC syllabus?

  • Negative gearing is a policy in Australia which allows a tax deduction when the cost of owning a rental property is higher than the income it generates. This incentivises people to purchase more property, which encourages borrowing and greater household debt.
    • Treasury has found that this policy mainly helps high income families. This can be explained as it is mainly high-income families who own properties. Hence, negative gearing may exacerbate income and wealth inequality. (HSC Topic 3)
  • The RBA paper developed a model which showed that if negative gearing were removed, the welfare of the economy would improve by the equivalent of 1.5% of GDP. (HSC Topic 4 – Fiscal Policy)
    • There are two reasons for this cited by the researchers. The first is that the removal of negative gearing will lower house prices, making it easier to purchase a home and improve home ownership rates, which subsequently improves standard of living. The second reason is the increase in the government’s revenue from the removal of negative gearing, which then allows the government to redistribute resources across the population.
    • Here’s another way to think about it. The removal of negative gearing will improve income inequality. Recall the argument that income inequality lowers overall utility (or welfare) in a population, because a lower-income individual gains more utility from a dollar than a high-income individual. Thus, removing negative gearing improves overall welfare in the economy.

TPP resurrected: Here's what's in the latest Trans-Pacific Partnership trade deal and what it means for you

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Donald Trump pulled the US out of the Trans-Pacific Partnership, and many believed that the trade deal was over. However, new negotiations have meant that the remaining 11 nations are set to sign the latest version of the deal, called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

How does this relate to the HSC syllabus?

  • The CPTPP will be an example of a multilateral free trade agreement.
    • The general aim of a free trade agreement is to remove protection amongst the member nations. In the case of the CPTPP, it means cutting tariffs (import taxes) and creating common laws and regulations. (HSC Topic 1)
    • The effect of this removal in protection on Australia would be more trade and exports. In particular, many tariffs on our agricultural exports such as beef, sugar and dairy, are planning to be eliminated, which will benefit our farmers. This leads to greater economic growth and employment. (HSC Topic 3)
    • However, some of the changes may take a decade to implement. For example, Mexico will slowly drop tariffs on pharmaceutical products, machinery and car parts over ten years. The purpose of this is to reduce the negative impact of the removal of protection, which can include the bankruptcy of local firms and unemployment. By tapering these changes over time, it gives time for the local economy to adjust. (HSC Topic 1)

Gary Liang GARY LIANG
Gary Liang is the founder and director of Keystone Education. He attended Sydney Boys High and achieved an ATAR of 99.95 in 2012. He achieved 5 state ranks in Mathematics, Mathematics Ext 1, Mathematics Ext 2, Chemistry and Economics. He is now studying Economics and Science (Advanced Mathematics) at the UNSW Australia, where he is the recipient of eight scholarships. He has experience at a top tier investment bank, a technology startup and a high frequency trading firm.

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