Price drop ... retail prices have dropped as much as 50 per cent due to the presence of online shopping.

The expert panel recommended the government drop the GST-free threshold for goods bought from overseas online to $500 immediately. Photo: Louise Kennerley

An expert panel has urged the government to immediately halve the $1000 GST-free threshold for goods bought from overseas online, and said Canberra should consider changes that could ultimately see the threshold cut to as little as $20.

With state budgets under severe pressure due to sluggish growth in GST revenue, a report by former premiers Nick Greiner and John Brumby and businessman Bruce Carter, published on Friday, said collecting more tax from overseas online purchases should be a ''high priority''.

It said the current threshold of $1000 was out of step with other countries, and the government needed to consider ways to bolster the tax and ensure a level playing field for local retailers.

As a first step, it argued the threshold should be halved to $500 ''immediately''.

In the longer term, it said federal and state governments should look at requiring overseas suppliers to collect the tax, as domestic retailers do.

This would allow the government to dramatically lower the threshold without the expense of having to handle hundreds of thousands of extra parcels – the dilemma it faces now.

"Such an approach would enable the GST exemption threshold for physical parcels to be reduced to a nominal level, no more than $20 or $50,'' the report said.

The panel said it accepted that shoppers were not only attracted to foreign online stores by the lack of GST. However, this was ''beside the point''.

''We are under no illusions that lowering the threshold would be a panacea to local retailers, as has sometimes been suggested. But to some extent this is beside the point,'' the report said.

''We can see no reason why the GST should not be paid on this category of domestic consumption as long as the costs of collection are lower than the tax paid.''

Despite the arguments in favour of lowering the threshold, it is understood the government has no plans to make such a change in the short-term.

A taskforce within Treasury has been investigating how to make parcel processing more efficient – a necessary first step to collecting more revenue in an efficient way.

A final report from the taskforce, handed to Assistant Treasurer David Bradbury in September, said that cutting the threshold to $500 would be more cost-effective than slashing it dramatically, as some retailers have called for.

The government's official response to the Treasury taskforce, due in the coming weeks, is expected to avoid changing the threshold, instead focusing on collecting the tax more efficiently.