Worrying trends in the Australian economy - Speech, House of Representatives

HOUSE OF REPRESENTATIVES, 3 DECEMBER 2019

Recently the House Economics Committee had the pleasure of hearing from Rod Sims, the head of the Australian Competition and Consumer Commission, and his staff, to investigate a range of important issues surrounding competition and market dynamics within the Australian economy.

At the outset, as our report notes, there have been a number of worrying trends in the Australian economy, suggesting that it is becoming less dynamic. Sasan Bakhtiari has tracked the number of new start-up firms in Australia, going back to the beginning of the century. He finds that at the beginning of the century the Australian economy was creating new firms at a rate of about 15 per cent a year; now that's down to just nine per cent a year.

We have similar trends with business more broadly. If you strip out the non-employing firms, again the rate of new business formation seems to be declining. There are considerable concerns over the productivity growth rate in the Australian economy. We've just had the worst ever productivity numbers in 25 years handed down, and that follows a significant period in which Australian productivity has been of concern.

Typically the Productivity Commission reports how the amount of capital per worker has increased. It is a concept known as capital deepening. Recently they have had to use a different term; they refer to capital shallowing, as the amount of capital per worker has declined. Given that capital deepening has been about three-quarters of labour productivity growth, that is a frightening concern indeed.

We have businesses cutting back on research and development and investing less in good management. The share of firms that are innovative is no longer growing, and a survey of management practices in manufacturing firms found that Australia's managers rate below those in Canada, Sweden, Japan, Germany and the United States. The Harvard Atlas of Economic Complexity ranks Australia 93rd, well below other advanced economies. Treasury research has found that there is less job switching in Australia and that Australian workers find it more difficult to change firms than they did in the past. And research highlighted by Megan Quinn at a conference earlier this year showed that, since 2002, Australia's most productive firms—the top five per cent—have fallen off the global frontier by about a third. The bottom 95 per cent of firms have barely increased their productivity since Sydney hosted the Olympics at the start of the century.

That is a frightening scenario for the Australian economy, so we began by exploring the concerns that I had and that other Labor members share about the rise in market concentration having contributed to the problems in the Australian economy. It was acknowledged by the ACCC that a more dynamic economy could well be a function of high market concentration. We went into particular sectors. When we discussed the issue of banking, the ACCC said that they did not think 'there is strong competition in retail banking' and then went on to say, 'We're also observing that, even though you have some quite big players outside the big four, it's not clear that any of them are really displacing any of the big four or making serious inroads.' They flagged a lack of price competition and the fact that the big four seem to be maintaining their market share and earning very high profits.

I took to them the issue of the so-called loyalty tax, in which existing mortgage customers end up paying higher interest rates than new borrowers coming in the door. They acknowledge that such a loyalty tax does exist in the mortgage market, as indeed it exists in other markets, such as electricity. I have raised the issue of a loyalty tax with the heads of Australia's big four banks as they have come before us and, indeed, with some of the smaller banks as they have come before the House Economics Committee. I do not think it is reasonable for Australian firms to be charging two customers different rates.

The mortgage tax is redolent of the fees-for-no-service scandal which arose in the banking royal commission, which showed that some banks were charging customers for a product that they were not supplying. I am not sure it is that different to be overcharging your customers for a product that you are supplying at a lower price to other customers. I worry in particular that the loyalty tax falls disproportionately on vulnerable consumers who do not have the social networks, who do not perhaps have the time or confidence to phone up their mortgage provider and get a better deal.

We went to the question of the ACCC's inquiry powers. I put to them that the UK's Competition and Markets Authority has a market studies power and the ability to initiate studies of its own volition and to use information-gathering powers in those inquiries. The ACCC confirmed that they would indeed like to have a similar power to what their British counterpart has. That such power, in my view, would help address the challenge of market concentration in Australia.

When we were last in government, Labor criminalised cartels. We spoke with the ACCC about the decision in the cartel case involving the Japanese shipping company Kawasaki Kisen Kaisha and why criminal charges were not pursued in that case. The ACCC noted the challenge of achieving a prosecution in that case but certainly acknowledged that the criminalisation of cartels provides them with an additional tool in their arsenal that they can use in these instances.

We spoke about the digital platforms inquiry, and I note that the government has now made clear that it will not be responding to the digital platforms inquiry this year. In my view, that's a disappointing outcome. This is an important report, handed down at a time when journalism is under considerable threat, and it's important that the government tackles these challenging issues. In particular, the Australian Competition and Consumer Commission has recommended stable and adequate funding for the ABC and SBS, and it's perhaps not so surprising that a government which has cut funding to the ABC is unwilling to respond to the digital platforms inquiry. They might just have to admit that, when they broke that promise never to cut funding to the ABC and SBS, they damaged good journalism in Australia.

We also explored the distinction between the ACCC's digital platforms inquiry and the Furman inquiry in the UK. I was interested in why the ACCC hadn't pursued the Furman inquiry's balance-of-harms approach. The ACCC justified their argument, but I do believe that it would be worth considering the measures that were raised in the Furman inquiry, in Australia.

We discussed the problem of mechanics getting access to the data they need to fix modern cars. Modern cars are computers on wheels, with hundreds of onboard computers, and yet independent mechanics don't have access to the same data that authorised dealers have. The government have been dragging their heels on this important reform. They say they're committed to it, but the mechanics are yet to see the data.

And we talked about the cost. I asked the ACCC about their view that numbers from the United States could be extrapolated to Australia, and they agreed that the cost to Australian consumers could well be over a billion dollars a year. A billion dollars a year—the cost of this coalition government dragging its heels on a reform which ought to be enjoying bipartisan support.

Finally, we explored the issue of price parity clauses which prevent Australian accommodation providers telling their customers that they can book direct and save. Price parity clauses which are put in place by Booking.com continue to see a large share of the revenue from our accommodation sector going offshore. Expedia has undertaken not to enforce parity clauses; Booking.com has not. That means that, when you book through Booking.com, between 10 and 30 per cent of the bill goes offshore. I call on Booking.com to do the right thing, and I hope the government will step up and deal with this issue systematically, for the sake of Australia's accommodation sector.

ENDS

Authorised by  Paul Erickson, ALP, Canberra.


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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.