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Australian government gouged on PC software prices

Corrected: software expensive, PCs competitive

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Consumers aren’t the only buyers that suffer the infamous “Aussie tax” on IT: AGIMO has revealed that its desktop OS software purchases cost about double similar purchases by the US and Singaporean governments, although its hardware arrangements yield competitive prices.

Chiming into the price gouging debate, AGIMO has stated in its submission to the parliamentary inquiry that for Microsoft software “Gartner advice indicates that the difference in the base government price means that the US Government is paying some 50% less than the base government price in Australia. The Singapore Government prices also appear to be some 50% below those charged to the Australian Government”.

That price gap might be easy to justify given the size of the US government. However, Singapore’s roughly $240 billion GDP is well below Australia’s (around $1.4 trillion, according to the World Bank), suggesting that scale isn’t the only factor in play.

While Australian hardware prices are well above those two international benchmarks, AGIMO states that the whole-of-government purchasing arrangements it administers have yielded considerable savings compared to street prices for IT. It claims an estimated saving of $20 million in desktop hardware procurement since 2010, and savings of more than $80 million in Microsoft licenses since 2009.

Citing Gartner as its source for average hardware prices, AGIMO states that “the Australian Government is now paying more than 50 percent less than the Australian market average for standard desktops and more than 25 percent for standard laptops.”

There are clear economy-of-scale advantages to AGIMO’s whole-of-government purchasing arrangements. Moreover, as AGIMO notes, vendors must sell to the government under these arrangements: “the vendors know there is no alternative and are thus motivated to participate effectively”, the submission notes.

Vendors will be able to point out that per-unit cost-of-sales is lower under whole-of-government arrangements than through a retail channel: the government buys around 7,000 desktops per quarter under its contract arrangements.

However, if even the government can’t completely beat international price discrimination, it’s hard to credit statements that shipping, retail costs and tax make up the whole of the differential. ®

Bootnote: The earlier version of this story incorrectly applied a software price benchmark to hardware. The author regrets the error. ®

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