Andrew Leigh

The Productivity Commission, Australia’s independent economic evaluator, has crippled the flimsy foundation for the effects test promised by Malcolm Turnbull’s nearly-minority Government.

In its draft report into the Regulation of Agriculture, the Commission found that “Introducing an ‘effects’ test to section 46 of the (Competition and Consumer Act 2010 (Cwlth)) is…unlikely to shield farm businesses from intense competition in retail food markets.”

An effects test won’t protect producers, but it will raise grocery prices and threaten retailers with court action if they become too competitive.

The Commission’s finding also tallies with the fact that 10 out of 12 reviews into competition policy since 1976 have recommended against an effects test.

Labor remains opposed to the effects test as it will have a chilling effect on competition and raise prices on everyday groceries such as bread and milk – we know already the Deputy Prime Minister believes the “proper price” of milk is anywhere up to $11 a litre.

Labor and the Productivity Commission are not alone on this. When the Abbott Cabinet discussed the effects test, many Ministers opposed it, including George Brandis, Andrew Robb, Julie Bishop, Mathias Cormann and, funnily enough,  Malcolm Turnbull.

They opposed it because they know that 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.

As former head of the Australian Competition and Consumer Commission Graeme Samuel has warned, under an effects test, bigger companies may be afraid to lower prices.

Who else thinks the effects test is an economic fail?

Well, there’s former Treasurer Peter Costello;

“The so-called effects test is designed to protect competitors, particularly less efficient ones, from a competitive challenge.”

And the Business Council of Australia;

 “(P)prices will rise and consumers will suffer.” 

And Catherine Livingstone, the President of the Business Council of Australia:

“These changes add a major new regulatory risk that will make the decision to innovate less attractive.”

And Richard Goyder, the head of the company that owns the Coles Supermarket chain:

“I think it will have a negative impact because it'll cost consumers more.”

And the Retail Council of course:

“The backflip by the government is simply bad policy and the consumer is the loser.”

And John Durkin, the Managing Director of Coles, who has a specific warning for National Party voters in regional areas who will be disproportionally hit by rising grocery bills under the effects test:

“I cannot get an answer… on whether we will be able to sell bread, beans and nappies for the same price in regional Australia as in Toorak.”

Even the author of the latest iteration of an effects test, Professor Harper, said in his final report that such a test would “involve some uncertainty” and that “uncertainty may lead to some cost”.

The only entity left supporting the introduction of an effects test – Malcolm Turnbull’s sell-out of consumers to the National Party – is the National Party. The National Party now has more influence in the Coalition than before the election. And Barnaby Joyce leads the National Party.

If you buy groceries, watch out.