The Effects Test Will Raise Prices

Consumers Must Come First, Daily Telegraph, 25 March 2016

There are two kinds of supermarket shoppers: those who read the prices on the shelves, and those who can afford to ignore them.

If you disregard the dollar signs and skip the specials, feel free to stop reading now. But for the rest of us, the government’s latest decision is a real worry.

When it comes to keeping prices low, smart competition laws are one of the best tools that governments have. However, competition laws are only smart if they’re ferociously pro-consumer. Competition isn’t about protecting lousy firms – it’s about making sure we get the best deal for shoppers.

When the government boasts that its latest decision will push up prices, customers should be worried. Last week, Deputy Prime Minister Barnaby Joyce managed to persuade the Turnbull Government to back an effects test. Shortly afterwards, he was on television saying ‘I obviously believe that the proper price of milk is above a dollar.’ He went on to say that we export milk to China at $11 a litre. As some observers pointed out, it looks like Mr Joyce thinks we should be paying an extra $10 a litre for our milk.

If Barnaby Joyce was just another Coalition renegade, it might not have mattered much. After all, this is the man who warned that Australia might default on its debt, promoted mining in Antarctica, confused billions with trillions, and threatened to have Johnny Depp’s dogs shot. But today, Joyce is the second-most powerful person in the Turnbull Government, and his zany economic views are driving competition policy.

It isn’t just milk prices that threaten to rise under an effects test. Former head of the Australian Competition and Consumer Commission Graeme Samuel has warned that under an effects test, bigger companies may be afraid to lower prices. Richard Goyder, head of the company that owns Coles, says ‘I think it will have a negative impact because it'll cost consumers more’. As this paper reported yesterday, Coles Managing Director John Durkan warns that the effects test could particularly push up prices in regional stores. The Business Council of Australia bluntly notes that ‘prices will rise and consumers will suffer’.

It didn’t have to be this way. Among the Liberals who oppose an effects test are former Treasurer Peter Costello, who has noted that ‘The so-called effects test is designed to protect competitors, particularly less efficient ones, from a competitive challenge’. When the Abbott Cabinet discussed the effects test, many ministers opposed it, including George Brandis, Andrew Robb, Julie Bishop, Mathias Cormann and Malcolm Turnbull.

But as part of the deal to become Prime Minister, Turnbull sold out consumers by agreeing to the National Party’s demand for an effects test. As the Retail Council summed it up, ‘The backflip by the government is simply bad policy and the consumer is the loser’.

There’s never a good time to introduce an effects test, but there are three reasons that make it particularly risky right now.

First, the investment climate is dreadful – businesses say they will cut investment in the coming year by more than they have for 25 years. And yet an effects test will make it riskier to open a new Bunnings or Kmart.

Second, everyone agrees that we need more entrepreneurship. Yet as Business Council President Catherine Livingstone puts it: ‘These changes add a major new regulatory risk that will make the decision to innovate less attractive.’

Third, wage growth has slowed to an 18-year low. If your pay packet isn’t growing, but Barnaby Joyce and Malcolm Turnbull are inflating your grocery bills, something’s gotta give.

An effects test won’t help small business – it’ll just increase uncertainty. That’s why it has been opposed by 10 of the past 12 competition reviews. Knowing that an effects test would increase business uncertainty and drive up prices, Shadow Treasurer Chris Bowen signalled a year and half ago that Labor would not support it.

On cost of living, Labor’s record is strong. After inheriting an inflation boom from the Howard Government, we kept consumer prices in check. Today, the challenge is to make sure our competition laws give us the best deal at the cash register.

In a fragile investment climate, with woeful wage growth, we can’t afford to have the Liberal Party outsource competition laws to their agrarian socialist partners. An effects test will have the same impact on prices as a higher GST – but it won’t raise a dollar of extra revenue.

Andrew Leigh is the Shadow Assistant Treasurer and Shadow Minister for Competition. His website is

A shorter version of this piece appeared in the Daily Telegraph on 25 March 2016.

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