Craig Kelly (Hughes, Liberal Party) Share this | Link to this | Hansard source

I would like to speak on competition policy, and I begin by congratulating the Treasurer on reopening the debate on section 46 of our competition act, the provision that applies to the misuse of market power. The recent Harper review did get one thing right, and that is that section 46 needs reform. However, the so-called effects test debate is a phoney debate. It is worse—it is a bait and switch, and it is even a Trojan horse. I know some of my colleagues have supported the effects test, and there are many in the small business community who have supported it. I can understand, after so many years of failing to get any change, why when they see something put up they might say let's jump at that, let's take it. But I would ask them when they are considering this legislation to apply what I call the Adam Smith test—the Adam Smith from the Wealth of Nations, who back in 1776, almost 240 years ago, warned us:

The proposal of any new law or regulation of commerce which comes from this order—

meaning the dealers, that people with entrenched market power—

ought always to be listened to with greater proportion, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but with the most suspicious attention.

That is the test that I ask the small business community to apply when looking at this legislation. There has been much debate over many years about replacing the word 'purpose' in the act with the word 'effect'. In the current section 46 there are three things that need to be proved. You must show that the company in question had a substantial degree of market power. Secondly, you must show that they have taken advantage of that market power. Thirdly, you must show that they have done so for the purpose of three things, and they are most important: eliminating or substantially damaging a competitor, preventing entry of a competitor or deterring or preventing a person from engaging in competitive contact.

If it just said you needed to show the effect of those things, that would solve everything. But that is not what is being proposed in the Harper review—it is a bait and switch. What is being proposed is not the effect of eliminating or substantially damaging a competitor, it is the effect of substantially limiting competition. This is a completely different concept. You can eliminate your competitors without there being a substantial lessening of competition. This puts another hurdle on the end of section 46—almost an insurmountable hurdle for many small businesses.

This alone sends us backwards, but is worse than that. In the fine print of the Harper review we see they are removing section 46(1AA). That is the section that was introduced by Peter Costello—one of the last pieces of legislation he brought to this House before the defeat of the Howard government. That fixed the anomaly in our laws that was commented on in the Boral case by Justice McHugh back in 2003. This is how he explained why section 46 needed changing:

Conduct that is predatory in economic terms and anti-competitive may not be captured by s 46 simply because the predator does not have substantial market power when it sets out on its course to deter or injure competitors

He went on:

Section 46 is ill drawn to deal with claims of predatory pricing under these conditions.

That is why section 1AA was in—it removed the requirement that a firm had to have a substantial degree of market power when they set out in the conduct. So it replaced the words 'a substantial degree of market power' and put in the words 'a substantial share of the market.' All you need to engage in a successful scheme of predatory pricing is to have a substantial share of the market and deep pockets to outlast your opposition. That is why section 1AA was brought into the act by the previous coalition government. This cannot be removed. We cannot allow it to be repealed.