False claims are damaging our economy - The Herald Sun

Companies that lie must be hit harder, Herald Sun, 28 November 2016

When it comes to household brands, who do you trust? That’s the question Australians were asked earlier this year as part of a Reader’s Digest survey. The top three were vacuum cleaner manufacturer Dyson, and battery makers Energizer and Duracell. But what’s more interesting is who came in at number four: paint manufacturer, Dulux.

Unfortunately, Dulux’s time atop the trust list might be short-lived. Earlier this month, the company was fined $400,000 by the Federal Court for misleading its customers. Dulux claimed that its outdoor paint could reduce the temperature of a house by up to 10 degrees.

If true, Dulux’s outdoor paint would’ve been a cool product indeed. Unfortunately, as soon as the temperature rose on Dulux, their claims began to peel away. When they couldn’t brush off the criticisms any longer, Dulux admitted that they didn’t have the evidence.  

Alas, Dulux is not the first coat in Australian false advertising. Every year the Australian Competition and Consumer Commission receives 14,000 complaints of misleading and deceptive conduct. The competition watchdog can only take a small share of these complaints to court. The list of companies that have been reprimanded by the competition watchdog or the Federal Court over the last 12 months reads like the ‘who’s who’ of big companies, including Jetstar, Virgin, Arnott’s, Uncle Tobys, Optus, Harvey Norman franchisees, Kogan, Nurofen, Unilever and Volkswagen.

False claims aren’t just a casual annoyance, they also damage our economy. I estimate that the companies that were found to have misled and deceived consumers last year operate in industries with over $200 billion of revenues annually. This is a sizeable chunk of the Australian economy.

The problem is straightforward: when companies can get away with lying, they stop competing. Why compete on price if you can get away with hidden shipping charges? Why work to make a nourishing product if you can falsely label it as being ‘fresh and healthy’? Why bother creating innovative products if you can make any unsubstantiated claims you like?

Allowing companies to get away with misleading and deceiving consumers damages the competitive dynamic of our economy. It means less innovation, higher prices and less production, as well as more dangerous products. Trust is fundamental for markets to operate effectively. Eroding that trust can have substantial economic and social consequences.  

Unfortunately, the problem appears to be on the rise. Complaints to the competition watchdog of misleading and deceptive conduct are up one-third over the last three years. Last year, Australians lost a record $229 million to scammers. That’s more than ten dollars for every person in Australia. Customers with less education and poorer social networks are particularly vulnerable to rip-offs. So what can we do to arrest this problem?

A central problem is that the penalty for misleading and deceptive conduct is too low. The penalty faced by Dulux for its ‘ice paint’ claims represents 1/5000th of its annual turnover. This is the equivalent of a speeding fine of $16 for the average full-time worker. Australian Competition and Consumer Commission Chair Rod Sims has warned that companies see these penalties as a mere ‘cost of doing business’. Federal Court Justice Michelle Gordon argues that these penalties do little to deter illegal conduct.

Currently, the penalty for breaching the Australian Consumer Law (which includes misleading and deceptive conduct) is a maximum of $1.1 million. This is a drop in the paint-bucket for big companies. It means that if you rip off consumers, you pay only one-ninth as much as if you breach the competition provisions of the Australian Competition and Consumer Act.

Labor went to the last election with a common sense policy to address this problem. We proposed that the penalty for breaching the Australian Consumer Law be increased to the same level as that for anti-competitive conduct: $10 million. Importantly, we also proposed to use some of the revenues from these increased penalties to double the competition watchdog’s litigation budget, giving it more firepower to go after companies that flout the law. The independent Parliamentary Budget Office estimates that this would still leave the federal budget $62 million better off over the next four years.

Raising the penalties to ripping off consumers is a practical way to reduce the damage that deceptive conduct does to consumers and to the economy. It’s time to stop trying to gloss over the problem, and treat misleading conduct as the stain it really is.  

Andrew Leigh is the Shadow Assistant Treasurer and the Shadow Minister for Competition. This opinion piece first appeared in the Herald Sun on Monday, 28 November 2016.


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