'Australia Tax' confirmed: IT pricing report released

Australians are being forced to pay up to 50 percent more for technology hardware and software compared to the US, the parliamentary committee investigating IT price disparities has found.

The committee today released the results of a year- long investigation into consumer reports of technology vendors hiking the prices of their products locally.

The investigation found that in many cases the price differences for hardware and software could not be explained by the cost of doing business in Australia — a reason long-favoured by technology vendors.

It confirmed the existence of the colloquially-known 'Australia Tax' — the use of regional pricing structures by technology vendors such as Microsoft, Apple and Adobe which increase Australian product prices.

“While the committee recognises that businesses must remain free to set their own prices in a market economy, it has nonetheless made a range of recommendations that are intended to sharpen competition in Australian IT markets,” the committee said in the report.

“In many cases prices are significantly higher than what might be expected as a consequence of any costs arising from delivery in the Australian market.”

Higher prices had previously been attributed to Australia’s geographical remoteness, a comparatively small and scattered population, and a weak Australian dollar, the report stated.

But consumers have been become more aware of prices in globally comparable markets in recent decades thanks to the growth of the internet and online retail.

While the committee acknowledged there were factors specific to Australia which make it a high-cost environment for IT vendors — such as population spread and size, higher distribution, wage and occupancy costs — in many instances the higher costs could not explain the price differences in IT products, especially those delivered via the internet. 

“Given the evidence presented to the Committee of very large price differentials, it is difficult to avoid the conclusion that these practices amount to international price discrimination to the clear disadvantage of Australian consumers and businesses,” the committee said. 

Vendor corral

The inquiry began in May last year and received a total of 133 submissions. It held eight hearings over its life, one of which included representatives from Microsoft, Apple and Adobe that were summonsed after refusing to publicly appear. 

The committee said it had been frustrated by the three vendors’ unwillingness to participate, which had meant difficulties in the committee's ability to gather the necessary information. 

Apple had previously requested a closed-door hearing while Microsoft and Adobe refused to publicly front a hearing, with the software giant choosing to be represented by vendor body the Australian Industry Group. 

The committee said there was no single agreed position among industry bodies on what constituted higher local IT prices.

Microsoft Australia managing director Pip Marlow said during the public hearing the software giant was charging what Australians could bear. Apple passed the buck to its US parent, and Adobe blamed boxed product and repeatedly promoted its products.

The committee said it shared the view of Australian consumers that overseas suppliers of IT products charge Australians substantially higher prices without obvious justification other than that it is ‘what the market will bear’.

Price points compared

The committee studied several software and hardware products to determine what price difference existed.

It found an average price difference of 50 percent for software, with Adobe products on average 42 percent higher locally, Microsoft software 66 percent more expensive, and Autodesk products 51 percent higher. 

With hardware, Australian prices are 46 percent higher than in the US. Dell products were found to be 41 percent more expensive in Australia than the US, while Apple products were up to 15 percent more expensive locally. 

The committee made ten recommendations as a result:

• That the the ABS develop a program to monitor and report expenditure on IT products and the size and volume of the IT market both domestically and overseas.
• That the Government, in consultation with Universities Australia and CAUDIT, conduct a comprehensive study of the future IT needs of and costs faced by Australian Universities.
• That the Government consider a whole-of-government accessible IT procurement policy, to be developed by relevant agencies including AGIMO and relevant stakeholder groups.
• That the parallel importation restrictions found in the Copyright Act 1968 (Cth) be lifted, and that the parallel importation defence in the Trade Marks Act 1995 (Cth) be reviewed and broadened to ensure it is effective in allowing the importation of genuine goods.
• That the Government amend the Copyright Act’s section 10(1) anti-circumvention provisions to clarify and secure consumers’ rights to circumvent technological protection measures.
• That the Government investigate options to educate Australian consumers and businesses on geoblocking.
• That the Australian Government, in conjunction with relevant agencies, consider the creation of a ‘right of resale’ in relation to digitally distributed content, and clarification of ‘fair use’ rights for consumers, businesses, and educational institutions, including restrictions on vendors’ ability to ‘lock’ digital content into a particular ecosystem.
• The repeal of section 51(3) of the Competition and Consumer Act 2010.
• That the Government consider enacting a ban on geoblocking as an option of last resort; and
• That the Government investigate the feasibility of amending the Competition and Consumer Act so that contracts or terms of service which seek to enforce geoblocking are considered void.

Government no better off than consumers

One of the committee’s recommendations involved a potential whole-of-government IT procurement policy, to be developed by AGIMO and relevant stakeholder groups, after it found the Government was also being stung by high prices.

AGIMO entered into a four-year volume sourcing arrangement (VSA) with Microsoft in 2009 which, upon expiration this year, was renegotiated to provide better value to the Government — to the tune of $100 million less. 

The Government this month confirmed the renegotiation had come as a direct result of Microsoft’s damning testimony at the IT price inquiry. 

“In this contract, the Government secured significantly greater discounts resulting in closer alignment with the benchmark pricing paid in the United States,” a spokesperson said.

“The Government has put considerable effort into improving whole-of-government procurement processes and around $100 million in savings will be found through more effective procurement of Microsoft software licences.”

AGIMO said in its submission to the inquiry that despite the VSA providing a volume discount from Microsoft’s Australian retail price for the 250,000 users and 290,000 devices covered by the contract, the Government was still paying “significantly higher prices” than overseas counterparts. 

At the time the 2009 contract was signed, the exchange rate from the Australian to US dollar was $0.64, meaning Microsoft Australian Government prices were about 13 percent higher than US prices - which “appeared reasonable”, according to the report. 

"Following the improvement in the exchange rate over the past three years …the difference in the base government price means that the US Government is paying some 50 percent less than the base government price in Australia,” it stated.

“The Singapore Government prices also appear to be some 50 per cent below those charged to the Australian Government.”