HOUSE OF REPRESENTATIVES, 20 NOVEMBER 2024
I thank those members who have contributed to the debate. The Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 delivers a new, faster, stronger, simpler, more targeted and more transparent merger system that will help deliver what we all want: a stronger, more competitive and more productive economy. Our country is facing some of the most significant structural changes in our history, with increasing digitalisation, particularly artificial intelligence; the net zero transformation; and the rise of the care economy. We need to ensure workers aren't unfairly prevented from shifting to a better job. We must look after the most vulnerable.
In Australia, productivity growth has slowed and many aggregate measures of dynamism have declined. A range of competition indicators suggest an overall deterioration in competition in Australia since the early 2000s. We've seen the average market share of the largest four firms in each industry increase from 41 per cent in 2001-02 to 43 per cent in 2018-19. Average price mark-ups are estimated to have increased by around six per cent over the past two decades. A range of concentrated sectors are evident across the economy, ranging from baby food to beer. During consultation, CHOICE and the Consumer Federation of Australia highlighted adverse consumer outcomes in highly concentrated sectors: groceries, banking, telecommunications, energy and the digital economy. Farming groups raised concern about market concentration in supply chains, with limited options for buying inputs and selling products impacting their ability to sell at competitive prices.
Competition encourages innovation, puts downward pressure on prices, and leads to improved choice and quality of products and services for consumers and businesses. Merger law is a key pillar of competition policy. It plays a critical gatekeeper role in preventing anticompetitive mergers before they take place, protecting consumers and promoting competition.
Even small increases in prices resulting from anticompetitive mergers can be harmful for consumers. Analysis by the ACCC and their ex post review of Caltex's acquisition of Milemaker found that petrol prices in local areas near the Milemaker sites had increased by 0.8c per litre at the pump or around 0.5 per cent, costing motorists around $6 million every year. The need for merger reform is clear. The current ad hoc merger process is unfit for a modern economy, lagging best practice in comparable countries. Australia is one of only three OECD countries that doesn't currently require compulsory notification of mergers.
For some businesses, the current system can be too slow and cause expensive delays as they wait. We heard from the Business Council of Australia and the Tech Council that the process can also lead to considerable uncertainty and can be unpredictable. The current system relies on judicial enforcement, which can involve delays of multiple years while cases wind their way through the hierarchy of courts at considerable expense to the parties.
The current approach is also not transparent for businesses or the community. There is widespread agreement from stakeholders that increased transparency would help merger parties, other businesses and consumers to engage with ACCC merger reviews. Improved transparency will also allow the community to understand what mergers are doing to the economy.
For the ACCC itself, it has been dealing with inadequate merger notifications, insufficient information and a reactive, adversarial approach from some businesses, with limited capacity to present economic evidence in court. The voluntary nature means that merger parties can proceed to completion or threaten to complete a merger before the ACCC has finalised its review. Last year, over 1,400 mergers were recorded at a value of around $300 billion. Meanwhile, the ACCC looks at an average of 330 mergers a year. But we don't know whether these are the right 330 or the mergers with the greatest potential to cause harm. What we do know is that there are anticompetitive mergers that have escaped detection under our current system only to be found out after the fact.
In one example the ACCC became aware of a large number of acquisitions completed between 2017 and 2022 by Petstock, the second-largest speciality pet retail chain in Australia. To address concerns about the impact on national and statewide chain-on-chain competition in local areas, the ACCC accepted a court enforceable undertaking from Petstock to divest a package of sites and assets, including 41 speciality pet retail stores and 25 co-located veterinary hospitals.
In another example, Steadfast, Australia's largest Strata insurance broker, brokering around 40 per cent and writing around half of Australia's strata policies, has in just over a decade spent more than $1.6 billion in the acquisition of insurance brokers and underwriters. According to the ACCC, Steadfast has amassed a very significant market position with almost no notifications—only one in the last three years, which was very shortly before completion. The ACCC has publicly highlighted this as an example of the critical problem with the current informal, voluntary approach to merger control in Australia.
In a third example, Primary Health Care did not notify the ACCC of their acquisition of Healthscope's pathology assets, which removed a significant third player, leaving just two major full-service pathology providers in Queensland. After investigation, the ACCC accepted remedies to restore a competitive market structure in Queensland.
But addressing the effects of anticompetitive mergers after the harm has already occurred is not a good deal for consumers dealing with cost-of-living pressures or for businesses. The time and difficulty in obtaining information post-completion poses challenges in ineffectively remedying the harm and restoring competition. Concerns have also been raised about potential land banking by supermarkets which may block competitors from developing sites and entering local markets.
This bill responds to those issues, bringing our merger system into the 21st century. These reforms will ensure that future acquisitions that meet the notification threshold will be subject to scrutiny, empowering the ACCC to effectively and efficiently detect and prevent anticompetitive mergers and acquisitions. The size of the benefit is substantial. Drawing on evidence from overseas, Treasury has estimated an effective merger regime may be worth between $340 million and $732 million a year to the Australian economy, while noting that the status quo settings already achieved some of this. The gains will build over time, too, as more and more areas of the economy are saved from facing higher prices from anticompetitive mergers. If the new system stops just one additional merger that would have resulted in a five per cent price rise in a market the size of $200 million, it will save consumers $10 million a year. For context, a $200 million market is about the size of the newspaper and book retailing market in Western Australia.
Getting our merger and competition settings right will attract investment and allow startups to enter the market to challenge incumbents, promoting growth and innovation, reversing the concentration of market power in a small number of firms. The benefits from stronger competition are significant. Overall, Treasury and Reserve Bank estimates suggest Australia's GDP could be 1.3 percentage points higher if competition were restored to the same level as the 2000s. In today's dollars, that's $30 billion to $80 billion a year.
This bill introduces a mandatory and suspensory administrative system to better address anticompetitive mergers and acquisitions. It'll simplify and speed up the process for the review of mergers and acquisitions for businesses and the ACCC, give the ACCC stronger powers to identify and scrutinise transactions that pose a risk to competition and improve transparency so we're all better informed.
The new merger control system will be mandatory from 1 January 2026. Mergers above certain notification thresholds will need to be notified and approved by the ACCC as the first instance expert administrative decision-maker. Most mergers have genuine economic benefits and are an important feature of a healthy, open financial system. But some mergers can cause serious economic harm. The new system will be targeted and risk-based. Not every merger will be captured, and more resources will be devoted to addressing mergers posing the greatest risk to the economy. The thresholds will be set according to evidence of expected harm, allowing the ACCC to focus its efforts. The system will be responsive to insights from the latest evidence and economic theory as our economy rapidly changes.
Regardless of whether you think mergers are a significant economic problem or not, you should support this bill as best-practice regulation. The notification thresholds will be set through legislative instruments to ensure the system is agile, flexible and able to adapt to evolving issues in the economy. The government intends to set monetary thresholds via legislative instruments following the passage of this bill. There will be three key objective, risk based, targeted thresholds to capture economically significant acquisitions, acquisitions involving very large businesses and serial acquisitions.
We want to see the majority of mergers approved quickly so the ACCC can focus on the minority that give rise to competition concerns. Land acquisitions involving residential property development and certain commercial property acquisitions won't be included, to avoid clogging up the system with simple land purchases.
The bill also provides flexibility to allow the Treasurer to adjust and calibrate the thresholds to respond to evidence-based concerns from the ACCC about high-risk mergers, such as in the supermarket sector. On the advice of the ACCC chair, the government also intends to use this power to get the competition regulator to review purchases of an interest above 20 per cent in an unlisted or private company if the monetary notification thresholds are met. This is a significant change for the ACCC, the business and the community, and it will shape the boundaries of merger control over time. These reforms will improve community awareness and understanding of merger assessments, deterring anticompetitive mergers before they are proposed.
To support the transition to the new system, businesses will be able to voluntarily notify and opt into the new system from 1 July 2025. We're also retaining the existing prohibition against anticompetitive mergers for those that are not required to be notified. The ACCC will also be able to waive the requirement to notify, to support businesses to transition to the new system with greater certainty.
There is important work that needs to be done to prepare for the start of the new system, including ensuring the ACCC has economic and data analytics toolkits that it needs ready to go. Passage of the bill this year will give business and the ACCC time to prepare, facilitating a smooth transition and enabling the system to quickly mature. To ensure the system operates as intended into the future, the thresholds will be reviewed 12 months after coming into effect, and there will be a statutory review three years from the start of the new system to evaluate its functioning and effectiveness, driven by data and evidence, designed and supported by the Australian Centre for Evaluation. To promote accountability, the ACCC will report annually on statistics and data underpinning the new scheme. The ACCC is also committed to revitalising and expanding its Performance Consultative Committee to advise on the ACCC's merger review functions as well as the broad range of the ACCC's responsibilities.
Together with the new public register and other safeguards, business and the community can be confident that these reforms will achieve better timing, certainty and transparency around decision-making. Together, these changes will meet community expectations that the ACCC can detect and stop harmful anticompetitive acquisitions, give businesses certainty and predictability and make it easier for the majority of mergers to be approved quickly.
This bill represents the biggest reform to merger settings in half a century. Greater competition is crucial for lifting dynamism, productivity and wages growth, putting downward pressure on prices and delivering more choices for Australians dealing with cost-of-living pressure. The government is committed to building a more competitive, dynamic and productive economy. This bill will help to achieve this.
Finally, I'd like to acknowledge the work of Treasurer Jim Chalmers and the contributions of the Competition Review Expert Advisory Panel, the ACCC, businesses and the broader community to the consultation and development of this bill. A range of stakeholders have expressed support for reform of Australia's approach to merger control, including business, consumer groups, small business, the agricultural sector and competition law experts. I particularly want to thank Tori Barker and Nick Terrell from my office; colleagues from the Treasurer's office; officials from the Department of the Treasury's Competition Taskforce, including Marcus Bezzi, Jason McDonald, Annalisa Heger, Natasha McNamara, Jack Elliott, Stella Leung, Jessica Kwong, Lilian Yan, Sheena Chen, Geoffrey Go, Rocky Mi and Adam Spence; and officials from Treasury's law design team—Jessica Robinson, Amy Jarvoll, David Haines, Ron Harry and Kurt Nakkan. I commend this bill to the House.
The DEPUTY SPEAKER (Mr Wilkie): The original question was that this bill be now read a second time. To this the honourable member for Hume has moved an amendment that all words after 'That' be omitted with a view to substituting other words. The immediate question is that the amendment be agreed to.
Question unresolved.
The DEPUTY SPEAKER: As it is necessary to resolve this question to enable further questions to be considered in relation to this bill, in accordance with standing order 195 the bill will be returned to the House for further consideration.