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February 06 2013, 3:01PM

Favourable tax treatment of overseas goods bought online added to the retail industry's woes during the Christmas season, says a national retail body.

The Australian National Retailers Association (ANRA) says pre-Christmas spending was disappointing, with December sales falling 0.2 per cent to a seasonally adjusted $21.421 billion.

ANRA had predicted a rise, but instead retailers saw a third consecutive monthly fall.

"It's an enormous disappointment," chief Margy Osmond told reporters on Wednesday.

"The topsy turvy results won't bode particularly well for the retail sector going into 2013."

Ms Osmond said an increase in online shopping meant fewer dollars were staying onshore.

"We speculate that at least eight per cent of the normal Christmas spend has gone straight overseas," she said.

"It's an industry going through structural change, and consumers are radically changing and not prepared to spend unless the prices are the lowest of the low."

Department stores, however, enjoyed a rise in sales in the key post-Christmas period.

The retail body says the government needs to change the rules about taxes paid on overseas goods.

"Australian retailers are doing the very best they can to compete with overseas prices," Ms Osmond said.

"But as a result of a tax loophole that really needs to be fixed, they're at a disadvantage."

She called for a lowering of the GST threshold on goods purchased overseas, as well as industrial relations reform and extended trading hours.

"Extended trading hours, like the 24/7 you're allowed to trade online, are going to be critical to retail's future."