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

The Australian Small Business and Family Enterprise Ombudsman Bill 2015 is one of the steps that the coalition is taking to restore health and vitality to the small business sector of Australia after the previous six years of damage under the Labor government. We should never forget that under the six years of the Labor government we saw 519,000 jobs lost in the small business sector. More than half a million fewer people were employed in the small business sector after the six years of damage by the previous Labor government. The small business sector went from employing 53 per cent of the private sector workforce down to 43 per cent. We saw, despite the growth in our population and the growth in our economy, a decline in the number of small businesses employing people. So we have a lot to do to turn around: to get small business back on track, to encourage entrepreneurial activity and to get innovation again happening in the economy the way it should be. This bill is just one of those steps.

One of the reasons for this bill is the breakdown in the rule of law. The rule of law is one of the most important aspects that protects our liberal democracy and our free market system. The rule of law should mean that we are governed by pre-existing rules so that those participating in the economy simply know what is and what is not permitted. The rule of law should ensure that, when business decisions are made, the ground rules are known and can be enforced. Businesses must be protected from thievery and plunder, for our economy or any economy can never be fully productive if we have a legal system that does not protect the incomes, properties and contracts of those who produce our nation's wealth. If the rule of law breaks down it not only causes wealth to grow more slowly than it otherwise would but also decreases the living standards of some and often leaves some segments of the population in poverty. So it is essential that we have a rule of law that protects commercial activity, enforces existing laws and ensures fair dealing between those who buy and sell. But we have allowed a legal system to develop in this country that has resulted in the breakdown of the rule of law. We have allowed an order to develop where small businesses today are vulnerable to the depredations and thievery of larger businesses. We have created a legal system with a structure that provides privilege to a larger firm in a commercial dispute and puts a small business in a subordinate position. In a commercial dispute today between a large business and a small business, the small business simply does not have a chance. Small business can lose a commercial dispute. They can be right on the facts. They can have all the evidence. But they will often lose in commercial disputes because the larger competitor, the well-financed adversary they are often up against, simply has deeper pockets and can outspend them in a legal battle. That leads to a breakdown of the rule of law and a breakdown in access to justice.

That is one step this bill takes. By creating an ombudsman it provides one small mechanism that allows the ombudsman to step into the small business's shoes and help negotiate a dispute. This is one step but we should go much further. We should look at bringing triple damages, which were removed many decades ago, back into our competition laws. Unlike in the USA, where they have a triple-damages provision that encourages private enforcement in the law and allows small business to take on a larger competitor in a dispute, we had those triple-damages provisions taken away many years ago. We need to look at reinstating them as something we can do as well as creating the small business ombudsman.

Another reason why a small business ombudsman is needed in this country is another aspect of the rule of law, and one of the essential elements in the workings of any free market system. It is that all contracts need to be entered into freely. You need a willing buyer and a willing seller—and that word 'willing' is important. Through the failure of our competition laws we have seen the growth of duopolies and oligopolies fostered. We have reached a situation where the ability of one party to contract negotiations to say 'get stuffed' has been taken away. Take, for example, a small business supplying our supermarket sector. He would have assets invested in plant and equipment. He would have ongoing finance commitments to his banks or his other financiers. He would have ongoing commitments to his highly trained staff. He may have a lease on premises. These are all ongoing obligations and liabilities. And where he faces the situation that we have allowed to evolve in Australia, where we have allowed two players to capture 80 per cent or more of the market, that supplier will often find that 50 per cent or more of his sales are going to a single customer. So when he sits down in a contract negotiation with that customer, if that supplier finds that he is being put under undue pressure and being asked to do something unreasonable, he simply does not have the ability to say 'get stuffed'. Because if he cannot say that, if he walks away from those negotiations and loses 50 per cent or more of his business overnight, he is actually committing suicide in his own business. Very few businesses can continue to operate with a structure where overnight they lose 50 per cent of their business when they have investments in plant, equipment and an ongoing lease. This is the situation that we have allowed to develop in Australia. It is not only harmful to consumers; it is harmful to innovation in our country and we need that innovation. Everyone along the supply chain needs to get a drink along the supply chain.

If we allow our food producers to be squeezed to where their profits are so small, they will not have the money to invest in the innovation that they need, to expand into new products, to look at new markets, to tackle those developing markets in China and Japan where we have signed free-trade agreements, and to expand into all those new markets throughout South-East Asia. That is why what we see in the Harper competition review is very disappointing.

I note the small business minister walking into the chamber, and I would like to publicly say what an absolutely fantastic job he has done not only in getting very important legislation through to give small business actual practical results but for restoring confidence in the small business sector that has been so badly damaged and also for putting small business back front and centre of the political process.

This morning I was at a breakfast for the Master Grocers Association and they were talking about one of the recommendations of the Harper committee, the introduction of the effects test. But my concern with the so-called effects test is it simply has all the characteristics of a classic bait and switch. While similar to the effects test that was argued about long ago, the recommendation actually tacks another requirement on the end of the act 'that has the effect of substantially lessening competition'. Those words may not mean very much but they are the tests in our merger provisions. And by inserting those words, it will not strengthen the act; it will make the act completely ineffectual.

The other point that disappointed me in the Harper review was the recommendation on what was known as the old section 49, our price discrimination provisions. The old section 49 did not work; it was ineffective because it had that test tacked on to the end with a substantial lessening of competition, unlike the Robinson-Patman Act in the USA, unlike what they have in European competition law. European competition law talks about providing discriminatory prices or favours which puts one firm at a competitive disadvantage against another. We have those templates from overseas that could have been looked at. They have been unfortunately rejected and that is something I hope this government gives serious consideration to when we actually review this and decide what we are going to do and how we are going to take our competition laws forward.

Perhaps one of the greatest issues of price discrimination in this nation and one of the greatest problems small business face is the discriminatory position on retail rents. If you go to any major shopping centre across the nation, on average you will find the larger chains are paying around between 2½c and 3c or perhaps 4c in every dollar of sales towards their rent. Yet they are competing against small business competitors that can be matching them in sales per square metre dollar for dollar but, because of the discrimination in price, those small businesses are paying 20c and upwards in rent for every dollar that they make.

Imagine if we had a GST system where a small business had to pay 20 per cent GST but their larger competitor would pay five per cent GST. Imagine the distortions that would flow through the economy because of that. Those distortions are happening today and they have been happening for decades simply because of the price discrimination in retail rents. This is an unnatural market situation. It only occurs because of the protection from competition that we give our retail shopping centres through our zoning laws. For some reason we think it is a good idea to protect them from competition, which gives them special monopoly powers which have enabled them to screw the small business sector. It has been one of the major reasons why we have had such market concentration in this country over the last 30 years and why the supply chain has been squeezed so hard.

The other issue we hope that the small business ombudsman will tackle is unlawful penalties. It is part of our common law that where you have a liquidated damages provision, where one firm breaks a contract and they must pay a penalty, that the penalty agreed to must be a genuine pre-estimate of the loss for that company. But what we are seeing in bank fees, in contention fees and many other aspects throughout the economy are penalties put upon small business that simply are not genuine pre-estimates of the loss but are simply nothing else other than a price gouge, a got-you moment that is an unlawful penalty. And these companies have been able to get away with this because of the breakdown of the rule of law in this country where small businesses do not have the opportunity to bring these cases before the courts.

We hope that a small business ombudsman takes these issues up. We also have provisions still to be legislated over unfair contracts. While we believe in the importance and the sanctity of contracts, the provision of penalties, a common law provision going back almost 100 years, understands that there are times when firms can exploit their market power in negotiating that contract unfairly. That it is why we must recognise that today. We have so many firms that are basically placed where they do not have the ability to say 'get stuffed'. In contract negotiations, if a market is so concentrated and the smaller player does not have the ability to say 'get stuffed' to a demand and walk away, we have a breakdown of our free market system.

These are the things that we need to protect. We need to ensure that we do everything that we can in this country to encourage those that want to have a go in their own business, that want to be an entrepreneur rather than a unionised employee, to get out there and have a go. That is what has made our country great in the past: the individual citizen getting out there, taking risks and fighting against the odds. We need to ensure that this parliament gives them every support that we can.

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