Monday, 27 March 2017
Competition and Consumer Amendment (Misuse of Market Power) Bill 2016; Second Reading
I rise to join the honourable shadow Treasurer in opposing this bill, for various reasons. Firstly, Labor opposes any notion that putting into place an effects test is going to enhance competition. More to the point, and quite conversely, as I will set out in further detail, our submission is that any proposed effects test will fail competition policy. The other aspect of this bill, which perhaps is not getting an awful lot of sunshine on the other side, relates to part XIB of the act insofar as it relates to the repeal of telecommunications-specific anti-competitive conduct provisions.
The position of the Australian Labor Party in relation to its criticism of the effects test and the fact that it is likely to fail competition policy has been articulated in a consistent fashion both before the election, immediately afterwards and in this place as we speak. The arguments against the effects test are set out in comprehensive and easy-to-read detail in an opinion piece in The Australian Financial Review by the shadow Treasurer in October last year. He said:
In this year's election campaign the term "anti-business" was thrown around with a lot of abandon and there was of course much discussion of "innovation". All the while, Malcolm Turnbull was carrying a policy that is fundamentally antibusiness in its intent and impact and has the potential to chill innovation just when we need it the most. … The so-called "effects test" would try to assess whether a company with a high degree of market power is engaging in conduct with the purpose, effect or likely effect of substantially reducing competition in any market. It is a well-understood principle of competition law … that if a business with market power intends to reduce competition for its own benefit, this should be dealt with. But it is a dangerous leap to change this principle to disregard what the intent of the company is and outlaw a company making life more difficult for their competitors simply because they are innovating or increasing their own competitiveness.
Put simply, any amendment of the type proposed by the government in this case will not enhance innovation. It will not enhance entrepreneurial fervour. It will not enhance competition, to the point where both business and the consumer will be left worse off. Indeed, the shadow Treasurer makes the point in his article, in relation to posing the question:
How will it benefit consumers for any business to wonder whether a drive to reduce costs and bring down prices will see them hauled before the courts? It won't.
If we go back and have a look at the history of the analysis as to whether an effects test is likely to do the job, the results speak for themselves. If we go back and look at the start upon which the analysis was undertaken, back to 1976, since then 12 Australian competition reviews have considered an effects test. Ten of those reviews have recommended against it. Just in case one was not compelled to a conclusion by the numbers, if one digs a little further down to see exactly what the critics have to say about the imposition of an effects test in competition policy, look no further than Graeme Samuel, who is the ex-chair of the ACCC, Peter Costello himself, the Business Council of Australia, and allegedly also the Prime Minister when the matter was considered and rejected by the cabinet led by the former Prime Minister, the member for Warringah.
The chair of the competition review, Professor Harper himself, has conceded that the proposed effects test will create uncertainty. I will be saying more about that a little later. But if we have a look at what those public commentators have had to say about why this is a flawed piece of policy, the former Treasurer, the Hon. Peter Costello, said:
When you are looking at competition policy there is one basic question you have to ask before you can settle anything else . . . who is competition policy for? … If you take the view that competition is there for the consumer, which is what I believe is the fact, everything else will fit into place.
That is why he was against the so-called effects test:
The so-called effects test is actually designed to protect competitors, particularly less efficient ones, from a competitive challenge.
Let's see what Richard Goyder of Wesfarmers, the largest employer in Australia, had to say:
Every year we look at ... 20 new Bunnings warehouses, 30 new Coles stores, 20 new Kmart stores ... does that mean now every time we have a capital expenditure proposal come to us that we've got to look at the likely effect on competition?
Mr Graeme Samuel, the former ACCC chairman, also echoes those proponents criticising the effects test:
Under the Harper amendment, businesses would curb their competitive behaviour because of the legal risk. This would have drowned the commercial activity of big business in a sea of uncertainty. Lawyers and economists would need to sit at the right hand of business CEOs to guide them on the legality of every significant transaction.
The member for Hughes himself says:
It is not an effects test; its effect is to substantially lessen competition. It is not what you think it is it; it is a Trojan horse.
The reason it is a Trojan Horse is because of the impact of the test once one actually sees it put into place. Firstly, in relation to consumer prices: the day this decision was announced, the Deputy Prime Minister said that selling milk for a dollar a litre was too low; the price should be higher. At the same press conference he raised that milk was sold in China for up to $11. This is just the start of how consumer prices, the everyday cost of living, will hit families after the introduction of an effects test.
In relation to uncertainty: businesses need certainty to plan and make decisions. Litigation over the effect of their decisions will heighten uncertainty and make it difficult for businesses to plan ahead. This will impact on investment and jobs.
On innovation and growth: we hear a lot of talk about innovation over the other side, but when we actually see the rubber hit the road, look no further than Australia's largest employer, Wesfarmers, who have already said that they are deeply concerned about the negative impact of this decision on innovation. It will make it harder for businesses to test new products. That is the context upon what we will really see here if this bill is passed and we see the implementation of a so-called effects test.
There is an alternative path, and it is a path that the Labor Party put forward in a policy called Access to Justice for Small Business—a two-year trial put forward by the party which has two key components. The first component is in relation to making sure we do see true testing of the competition environment in a manner which actually allows businesses to thrive and prosper. The party has put forward a mechanism to allow private litigants bringing actions under part IV of the Competition and Consumer Act to apply to the court at an early stage, seeking relief from potentially adverse costs orders.
That is a very important component because it completely changes the landscape in relation to actually testing propositions as to whether anticompetitive behaviour is being played out in the business environment and, ultimately, to the detriment of consumers. It is well known that one of the largest disincentives in relation to testing these issues of anticompetitive behaviour through the courts is simply the costs involved in bringing such an action, not to mention the risk of adverse legal costs. Quite simply, many small to medium businesses just cannot afford the risk and, on that basis, will decide against pushing propositions where they see anticompetitive behaviour actually taking place.
The other aspect of the access to justice policy relates to the Small Business and Family Enterprise Ombudsman. It is Labor's plan to fund the small business ombudsman to vet small business applications for preventing adverse orders who are considering action under part IV of the Competition and Consumer Act. What this is likely to do is actually enhance the environment in that the reform put forward by the Labor Party will waive the liability of private litigants where they can demonstrate the merit of their case and how they are opposing anticompetitive behaviour. This is a practical policy alternative to encourage access to justice for small businesses. It is good for competition and it is good for small business.
But that is really only one of a suite of proposals which are pro-consumer and pro-competition that Labor took to the 2016 election. Some of the others are as follows: increasing civil penalties under the Australian Consumer Law from $1.1 million to $10 million, bringing those penalties in line with the competition provisions of the Competition and Consumer Act 2010. It is a vitally important reform that is required if we are actually going to put into place a set of enforceable deterrents to business when they are seen to be breaching the Australian Consumer Law. Quite frankly, the problem with such a relatively low threshold of a civil penalty as $1.1 million is that it does not necessarily deter those very large multinationals or corporates from adverse effects upon competition and consumer behaviour because, quite simply, the punishment does not fit the crime.
In relation to other proposals put forward by the party, there was a proposal to adopt the European Union's penalty system for anticompetitive conduct based on 30 per cent of the annual sales of the relevant product or service multiplied by the number of years the infringement took place limited to the greater of 10 per cent of annual turnover or $10 million. Again, for the same reason, what we really need to see here is some teeth on the tiger that are likely to actually have an effect upon preventing anticompetitive conduct or conduct which causes adverse outcomes for consumers.
What the Labor Party has also proposed is the use of some of the revenues from the increased penalties to increase the ACCC's litigation budget from its current level of $24.5 million to a maximum of twice that level at about $49 million. Again, it is all designed so the landscape can be altered to ensure that there is accountability on behalf of corporates who are seen to be engaging in anticompetitive behaviour or behaviour that would adversely affect consumers in a way where these cases can be properly tested in the courts.
They are all triggers or mechanisms in which litigation can be used effectively in order to make sure that corporates do not engage in anticompetitive behaviour which will affect markets, which will affect innovation and which will affect consumers. What we do not see is any of that in relation to this so-called effects test. What we do not see is any real sense or comfort that the implementation of these amendments will do anything but throw the landscape in relation to whether anticompetitive behaviour is being undertaken or not within the court system itself.
There is often a phrase bandied around called 'a lawyer's picnic'. I have not been to too many lawyer's picnics in my time, and they are not exactly the most exciting of affairs, which is why I try to steer clear of them. I suspect the member for Pearce is nodding in furious agreement over on the other side of the table! But what it will create is a situation where there will be an incentive to litigate in a way that is unlikely to benefit anyone, let alone business or the consumer. When we create an uncertain landscape with amendments like this—as night follows day—they are required to be tested, which, in itself, is not a bad thing. But it is a bad thing if what is currently put into place is a myriad of mechanisms and protections in which the legal system can be used for the benefit of consumers, the benefit of innovation and the benefit of business.
In relation to part XIB of the Competition and Consumer Act, it was introduced in 1997 to facilitate the transition to open competition in the telecommunications market. There are two main elements of that part: the competition rule, which sets out telecommunication-specific competition, and the competition notice regime, which allows the ACCC to issue competition notices and quickly respond to a breach of the competition rule. The basis of the argument to amend that provision of the act is that the general effects tests will apply to all industry sectors and, therefore, part XIB is no longer necessary. That is opposed, in no uncertain terms, in relation to this bill because, quite frankly, part XIB should not be repealed because what it does in its current form is provide the ACCC with stronger and faster intervention measures for the telecommunication sector than would otherwise be available under a general effects test.
In conclusion, what is plain to see once the surface is scratched in relation to what is being put forward in this bill is an outcome which is bad for business, is bad for consumers and, generally, is bad for the community, and it should be opposed.