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

Before I go on to my contribution in the grievance debate: that contribution by the member for Blair shows everything that is wrong with politics in this country and the threat and danger that we have to our prosperity going forward. He cannot come into this House and whinge and whine and mope about cuts here and cuts there when the member for Blair and his cohorts are responsible for creating the debt and deficit mess that we have in this country!

What needs to be remembered is that the Commonwealth interest bill on Labor's debt is $560 for every man, woman and child in the country, every year forever until we start paying that off. For the average family of four that is over $2,000 a year which whoever is in government has to find to pay just the interest on Labor's debt. This is the problem we have: we have to work together as a parliament to try to say, 'How are we going to get the budget back in order?' rather than coming in here and making these pathetic whinges about cuts.

The particular issue I wish to speak about this afternoon is something that I have raised several times in this parliament—many times since I was first elected—and that is the damage that is being done to our economy and our prosperity because we have an overly concentrated retail market and the failings of our competition policy to address that.

Nowhere in the world, other than in the old Eastern bloc countries, has a retail sector as concentrated as we do here in Australia. There is a famous picture—I am sure you would be aware of it, Deputy Speaker—taken in a supermarket in the US back in 1989. It was Boris Yeltsin's first trip to America. He was a member of the supreme Soviet. He had actually gone to a place in Houston and he did a detour, just at random, to check one of the local supermarkets. They said that he actually wandered around this supermarket—it was called Randall's supermarket—in absolute amazement at the goods that were available to the average consumer in America. Quoted from his biography, 'When I saw those shelves crammed with hundreds of thousands of cans, cartons and goods of every possible sort, for the first time in my life I felt quite frankly sick with despair for the Soviet people; that such a potentially super-rich country as ours has been brought to a state of poverty is a terrible thing.'

The reason the Soviet economy failed in something as basic as the production of food and groceries was because their market was overly concentrated. They did not have the innovation bringing out the new ideas, trying new business models and creating the new products that the West did. That is why the old Eastern bloc countries failed. The more diversity we can have in the market—the more players out there, bringing new ideas to market and trying new ideas and experimenting—that is what drives the economy.

The overconcentration in the Australian retail market is, firstly, not the result of free market forces. It arose because of the restrictive planning and zoning laws that we have in this country, where some council bureaucrat decides where someone can set up a retail shop, or what a retail shop can sell. In my electorate in Hughes, a retailer was actually taken to court and the court produced a list of things that it could not sell! Things such as babies bibs, prams and plastic buckets and bird cages! The court made this absurd decision about it because the local government regulations said, 'You as a retail shop cannot sell these things.' This has caused a massive distortion in our retail market where our major retailers basically get off paying a very subsidised rent that is subsidised by the smaller retailers of this nation. In any shopping centre in the country it is almost an 80-20 rule, where the smaller retailers occupy 20 per cent of the space but pay 80 per cent of the costs because they have their rent forced up year after year. If they want to go and set up a business outside the shopping centre they cannot, because of the government regulation that ties them in there.

This absolute distortion which I have spoken about was actually detailed last year in a Productivity Commission report on the costs of doing business. It compared the cost of wages, rent, utilities and other costs as a percentage of the total cost of doing business in Australia against costs in the USA and the UK. The rental cost for supermarkets in Australia was actually less because here in Australia that is subsidised, through those artificial zoning requirements, by those smaller retailers. When you come to the speciality retailers, the Productivity Commission found that the occupancy cost of rent for a clothing retailer in Australia is more than double what it is in the USA. We have our smaller retailers—our smaller, independent retailers—actually subsidising our larger retailers. That is why our larger retailers have grown so much in size compared to the smaller retailers in this country. This piles distortion upon distortion.

There was a report by KPMG back in 2013 which looked at the Australian retail sector and the suppliers in the Australian food sector. One thing they noticed—I will quote from the report at page 61—was there was:

… a significant increase in trade spend—

Trade spend is the rebate that a supplier pays back to the retailer such as through trade discounts and promotional allowances—

from 19.5 per cent of gross sales in 2008-09 to 23.4 per cent in 2011-12 without corresponding increase in volumes has had a … negative impact on profitability.

So what happens, because our retail sector is so concentrated, is those larger retailers have got excessive market power that enables them to go back and screw the supply chain. Rather than actually looking to use innovation and efficiencies to increase their profits, those larger retailers simply go back to those suppliers and put the screws on them for bigger rebates and bigger discounts. That is exactly what is recorded in this KPMG report. That is exactly what the ACCC found last year when they filed a case against Coles for unconscionable conduct, where Coles had actually used their market power to go back to their suppliers—after they had purchased the goods—to squeeze them for extra rebates. Because the market is so concentrated those suppliers simply had no alternative than to cough the money up—millions of dollars. That is money that could have gone into innovation and research. In such a market, what investor is going to put up their capital to produce new goods for the Australian retail sector when they know that they can be—pardon the French—screwed in that way?

And this is not an isolated case. Only last week we heard of another case where one supplier filed a court action against Metcash, claiming it had paid them $10.36 million in rebates on just $40 million worth of sales. They sold them $40 million worth of goods, but they had to pay almost 20 per cent—$10 million—of that money back as a rebate. The biggest cost of doing business for the suppliers is not their wages, their rent or the cost of the goods they get from the farmer but the rebates that they pay.

The detrimental effect this has on our economy goes on and on. This is something we need to address. The reason we need to address it is quite simple. If we look to the future for our nation, we need to be exporting; that is going to be the future. We need to be increasing our exports. We cannot simply rely on our mineral resources.

The biggest area we can increase our exports in is obviously going to be in the high-end food sector in Asia. But, before someone can do that from Australia, they have to be able to set up in Australia, develop their business model and get a product to market. Then, once they get their production and everything right in Australia, they can tackle the export market. I know because I speak from experience in this area. That is why, if our retail market remains overly concentrated in the way it is, it will deter innovation and investment, and it will be bad for the prosperity of our nation going forward. This is why our report into the competition policy in this country is so critical, and I look forward to seeing that report in the coming weeks.