Andrew Leigh

Second Reading Speech

Thursday 23 March 2017

There are species of animals known as tardigrades—or water bears or moss piglets—which are considered to be some of the most resilient species in the universe. They can go without food or water for 30 years. They can survive at temperatures of 150 degrees Celsius and minus 200 degrees Celsius. They can withstand pressure of 6,000 atmospheres, six times the pressure at the bottom of the Mariana Trench. They can be dehydrated for 10 years, withstand 1,000 times more radiation than other animals, cope with environmental toxins and survive in outer space. They are indestructible—and so too are bad National Party economic ideas. They just do not die.

That is what we are debating today. We are debating the tardigrade of economic policy: the effects test—a policy which has been recognised by serious economists and by formerly serious economic thinkers on the other side of the House to be a bad economic idea but which, like the tardigrade, has survived the pressure, the temperature and the attacks upon it to come before us today in this bad bill, the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016. Let's be clear: an effects test has been to a coalition cabinet before and been rolled. In the Financial Review, Phillip Coorey wrote, on 2 September 2015:

For reasons the government has not explained, the debate was shelved indefinitely. Had it gone ahead, Mr Billson risked being rolled with the cabinet heavy hitters, many of them lawyers, opposed to his proposals.

These included Attorney-General George Brandis, who has extensive legal experience in the area—

These are Mr Coorey's words, not mine—

Julie Bishop, Joe Hockey, Malcolm Turnbull, Mathias Cormann and Andrew Robb.

It was made clear in other reportage, by Lenore Taylor, that the member for Higgins and the member for Wentworth were not comfortable with an effects test. It is very clear that, when making a decision on the merits of the policy, the member for Wentworth, Malcolm Turnbull, opposed an effects test. Bob Baxt said that it was his understanding, as he put it:

There is a clear body within the cabinet including Kelly O'Dwyer and Malcom Turnbull that will not be comfortable with this proposed change.

In opposing an effects test, they would be in good company, because many who have looked carefully at this have taken the view that an effects test is a bad idea. Richard Goyder of Wesfarmers said:

Every year we look at … 20 new Bunnings warehouses, 30 new Coles stores, 20 new Kmart stores … does that mean now every time we have a capital expenditure proposal come to us that we've got to look at the likely effect on competition?

Former ACCC chair Graeme Samuel said:

Under the Harper amendment, businesses would curb their competitive behaviour because of the legal risk. This would have drowned the commercial activity of big business in a sea of uncertainty. Lawyers and economists would need to sit at the right hand of business CEOs to guide them on the legality of every significant transaction.

One only has to go through the series of competition reviews conducted since 1976 to see recommendations against an effects test. The 1976 Swanson committee recommended against an effects test on the basis that 'the section should only prohibit abuses by a monopolist that involve a proscribed purpose'. The Blunt review in 1979 recommended against on the basis that it would 'give the section too wide an application, bringing within its ambit much legitimate business conduct'. The 1984 green paper did recommend an effects test, one of only two of the last 12 competition reviews to do so. The 1989 Griffiths committee said that there was 'insufficient evidence to justify the introduction of an effects test'. The 1991 Cooney committee said that an effects test 'might unduly broaden the scope of conduct captured by section 46 and challenge the competitive process itself'. In 1993, the Hilmer committee recommended against an effects test, saying it 'would not adequately distinguish between socially detrimental and socially beneficial conduct'. The 1999 Baird committee said 'such a far-reaching change to the law may create much uncertainty in issues dealing with misuse of market power'. The 2001 Hawker committee recommended against an effects test and said it would 'await the outcome of further cases on section 46 before considering any change to the law'. The 2003 Dawson review said 'the addition of an effects test would increase the risk of regulatory error and render purpose ineffective as a means of distinguishing between pro-competitive and anti-competitive' conduct. The 2004 competition inquiry by the Senate Economics References Committee said that, while the committee was sympathetic to some of the arguments, the difficulties with introducing it meant that the committee did not recommend the inclusion of an effects test. So, of 12 competition reviews, 10 recommended against an effects test.

Writing in the Financial Review on 9 September 2015, Graeme Samuel and Stephen King wrote:

The proposed amendment was a fundamental contradiction to the economic philosophy underpinning our competition laws.

They went on to say:

Let us hope that this unfortunate blight on an otherwise excellent Harper report is dead, buried and cremated.

And dead, buried and cremated it would have been had it not been for the change in prime ministership. Under former Prime Minister Abbott, an effects test had been sent to the dustbin of history, where it belonged. But, because of a dodgy deal between the National Party and the member for Wentworth in order to gain the prime ministership, an effects test came roaring back. The member for Wentworth, Malcolm Turnbull, knows it is bad economics and argued as much when the question came to cabinet. Yet, for the sake of getting some National Party votes, the effects test, this tardigrade of economic policy, has found its way back.

As the shadow Treasurer has noted, one only needs to consider the real-world impact of an effects test for business. He gave the example of a business considering a discounting campaign. If a business notices its sales are down and wants to win back some customers by engaging in vigorous discounting, right now that kind competition is safe, because the law looks to the purpose of the discounting. Under the proposed effects test, the business decision makers would have to consider the effect their discounting would have on competition, considering the different geographic and product markets, and the impact of that might well be to chill competition. Major retailers often put in place uniform pricing on dry goods across their stores. That means if you are buying toothpaste it costs the same at a Woolworths store whether it is in Toorak or Toowoomba, but if you put in place an effects test then the effect of that might well be to hamper competition. Those retailers have warned that an effects test could do away with uniform pricing, which would mean that the price of an effects test would be paid by customers in regional Australia, who currently benefit from uniform pricing.

The possibility an effects test might drive up prices, though, does not seem to trouble the Deputy Prime Minister. The Deputy Prime Minister was asked in an interview last year, 'What about $1 milk?' and replied:

I obviously believe that the proper price of milk is above a dollar.

He went on to say that we sell milk to China for up to $11, so the Deputy Prime Minister clearly believes the proper price for milk is not $1 a litre; it could be as much as $11 a litre. $11-a-litre milk would certainly be a drag on the cost of living for many Australians and a burden on many Australian households, yet we have a Deputy Prime Minister championing an effects test, untroubled by the notion that an effects test might lead to the price of milk going to $11.

This is a government which is adrift from good economic policy. As former Treasurer Costello has said:

If you take the view that competition is there for the consumer, which is what I believe is the fact, everything else will fit into place. That's why I'm against the so-called effects test. The so-called effects test is designed to protect competitors, particularly less efficient ones, from a competitive challenge.

Indeed, the member for Hughes, Craig Kelly, has, in this place, described an effects test as 'a Trojan Horse'. I am delighted to see him on the speaking list for this debate and I look forward to seeing whether he still regards this as being a Trojan Horse and as being bad policy, which is what he told this House when he last spoke about it. We also had the announcement in the papers today that the government is going to make further tweaks to section 46. These are hasty, last-minute amendments being thrust upon this House. Just as we have seen this week on the diverted profits tax, with further amendments being foreshadowed, we have further amendments being foreshadowed on section 46.

We are, today, 723 days on from when the Harper review was ordered to be released by then Prime Minister Abbott. It has been 372 days since the Turnbull government responded to the misuse of market power recommendations and yet today, with the bill in the House, the government is foreshadowing amendments to its own bill. It is a further demonstration, if any were needed, that the tardigrades are in control; that the bad economics of the National Party just will not die; and that the government has given up careful, considered reform and the consultation that involves in favour of simply doing whatever they feel like doing when they wake up and have their breakfast.

On the Labor side of the House we have been absolutely clear and consistent in our commitment to good competition policy. At the last election, we proposed increasing civil penalties under the Australian Consumer Law from $1.1 million to $10 million, bringing penalties in line with the competition provisions of the Competition and Consumer Act 2010 and ensuring that, when you have consumer rip-offs like the Nurofen and Dulux examples, the penalties are sufficient to meet the effects. We proposed adopting the European Union's penalty system for anticompetitive conduct, based on 30 per cent of the annual sales of the relevant product or service multiplied by the number of years the infringement took place, limited to the greater of 10 per cent of annual turnover or $10 million. We proposed using some of the revenues from increased penalties to increase the Australian Competition and Consumer Commission's litigation budget, giving it greater teeth by increasing its budget from $24.5 million to a maximum of twice that level—$49 million.

At the last election, we proposed amending the Competition and Consumer Act to give a market studies function to the ACCC so that it could look systematically at industries, with a power to compel witnesses and really go to the bottom of what is going on with anticompetitive conduct. Every now and then, the ACCC is able to look into an industry—as it is has recently done with the beef auction industry—but it does not have those compulsory powers that its British counterpart does and that Labor's proposal, the market studies power, would give it. We proposed amending section 76 of the Competition and Consumer Act to allow the court to apply higher penalties for conduct that targets or disproportionally impacts disadvantaged Australians. We proposed to introduce a requirement in the Competition and Consumer Act that the ACCC prioritise the investigation of conduct that targets or disproportionally impacts disadvantaged Australians and, at last election, we proposed tasking government to investigate the impact of increased market concentration on income inequality.

We also took to the Australian people a proposal for access to justice for small business. This would see small businesses have an opportunity to bring on cases that are in the public interest without the fear of adverse cost orders. We proposed that the Small Business and Family Enterprise Ombudsman be given the power to advise small businesses who want to bring cases with a general application and not have costs awarded against them. Labor is serious about competition, but the government is not. The government has caved to the tardigrades in the National Party and to this bad economic idea of an effects test.