Summing Up Speech
House of Representatives
26 October 2022
Treasury Laws Amendment (More Competition, Better Prices) Bill 2022
My thanks to the members who have contributed to this debate. I acknowledge the work of both Small Business Minister Julie Collins and Assistant Treasurer Stephen Jones on this bill. This bill delivers on an election commitment to protect Australian households and small businesses by banning unfair contract terms and increasing penalties for anticompetitive behaviour.
The Australian Labor Party has a long history of economic reform that builds a fairer and more resilient economy. Competition is an essential part of that for three key reasons. First, competition is about fairness. Without government action, monopolists can wield their power to rig the game in their favour rather than compete on even terms. Second, competition deals with cost-of-living pressures and makes our supply chains more resilient. Competition means businesses offer Australians the best prices they can. A diverse and dynamic economy, a resilient economy, helps to absorb, adapt and solve the challenges of an uncertain world. Third, competition is about jobs and skills. Competition helps to ensure that the most innovative, creative and savvy businesses are the ones that thrive. Those are the businesses that are best placed to offer jobs that are stable, secure and well paid. Competition also gives workers more options, empowering employees to negotiate pay and conditions that reflect their true value.
This side of the House has a long record of supporting competition. It was Labor Attorney-General Lionel Murphy who introduced the Trade Practices Act 1974, which outlawed businesses colluding at the expense of Australian consumers. It was Paul Keating in the 1990s who recognised that competition eased cost-of-living pressures by lifting wages and lowering prices. Working with Fred Hilmer, he backed it up by implementing reforms that transformed swathes of Australian regulation for the better and helped deliver the 1990s productivity surge. National competition policy was far-reaching. Government businesses were restructured and made more efficient. A competitive National Electricity Market was established. Barriers to the free trading of gas across state and territory boundaries were removed. Before national competition policy, bakers in New South Wales could only bake bread at certain times of the day. Families across the nation had to do their grocery shopping in a mad, crazy rush on Saturday morning before shops closed for the weekend.
As a result of national competition policy, the Productivity Commission has estimated that the size of Australia's economy was permanently increased by 2.5 per cent. Today, that equates to some $5,000 per household. But productivity growth has slowed in Australia since the mid-2000s. From its peak of 2.5 per cent in the late 1990s, average productivity growth in the past 20 years was 1.2 per cent. Weak productivity hits real wages and the cost of living. By hitting national incomes, it stifles our ability to invest in infrastructure, to plan for the future and to lift up those who need support.
The productivity slowdown has been driven, at least in part, by a decline in dynamism. When workers move to more productive firms, they earn higher wages, and the economy benefits. Yet job switching has slowed in recent years, which can account for about a quarter of the recent productivity slowdown. Creating more opportunities for job switching through competition is crucial to reverse this trend.
Another crucial measure of the health of the economy is the startup rate. How many new companies, which employ people, are created every year? We can think of this as the business equivalent of the birth rate. That measure is in decline. Since the 2000s, there's been a downward trend in the rate at which new businesses enter the market. More than ever we need settings that allow startups to enter the market and challenge the old guard on even terms, and that means reversing the trend of market power concentrating in a smaller number of firms. When power is concentrated, monopolists can shift away from competing to instead focus on trying to dig moats that keep the competition out. Monopolists awash in cash simply buy out new rivals and, much like the Borg in Star Trek, assimilate those rivals to take their strengths as their own.
One way of analysing market power is to look at industry concentration. Since 2000, those figures show the market share of the largest firms in each industry has trended upwards. From baby food to beer, the largest firms hold a high and growing share of the market. For Australian consumers, that means higher prices, because businesses that dominate the market tend to impose on consumers bigger mark-ups. According to recent estimates, mark-ups—the gap between prices and production costs—increased by six per cent over the past two decades. Australians cannot afford for the trend in declining competitive pressures to continue.
That need for change to our competition laws is something that the Council of Small Business Organisations Australia has noted. In May this year, CEO Alexi Boyd said:
Reforming competition policy is crucial to ensure Australia remains a place where small businesses can grow and thrive …
The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson, welcomed the introduction of this legislation. As he noted, rebalancing relationships between small and large enterprises has an important role to play in promoting economic growth. Mr Billson also said that penalties for anticompetitive behaviour 'need to be more meaningful and not just an easily absorbable cost of doing business'.
Schedule 1 of this bill seeks to do just that—to increase the maximum penalty available for breaches of competition and consumer laws to ensure the price of misconduct is high enough to deter unfair activity and to ensure consumers retain a robust level of protection. By strengthening penalties, Australia will be promoting competition and better corporate behaviour. Greater competition means better prices and more choice for Australian households.
Australia's competition laws have long needed an update. It's been close to 30 years since the maximum penalty for anticompetitive behaviour was increased. As a result, we've fallen behind our international peers. In 2018, the OECD found that the average and maximum competition penalties in Australia are substantially lower than in comparable jurisdictions. The amendments in schedule 1 will increase maximum penalties for corporations that engage in anticompetitive behaviour from $10 million to $50 million and from 10 per cent of annual turnover to 30 per cent of annual turnover for the period the breach took place. The maximum penalty for individuals who engage in anticompetitive conduct will increase from $500,000 to $2.5 million. This will bring Australia into line with comparable international jurisdictions and will ensure that fines have a meaningful deterrent effect.
It has been argued by the Parliamentary Joint Committee on Human Rights that the increases in penalties are substantial enough to warrant considering whether a criminal standard ought to be considered rather than a civil standard of balance of probabilities. I have great respect for the Parliamentary Joint Committee on Human Rights, ably chaired by the member for Macnamara, and I thank the committee for bringing this issue to the parliament's attention. However, the Albanese government believes the use of the civil standard is appropriate and proportionate.
As I have noted, Australia's fines are presently substantially lower than in equivalent jurisdictions. This bill seeks to ensure we do not fall behind and risk those penalties being treated as just a cost of doing business. Increases to penalties are necessary for effective deterrence. The bill also provides discretion to the courts on how these penalties are enforced. While the maximum penalty is being raised, judges will continue to use their discretion and apply maximum penalties only to the most egregious cases. I appreciate the Parliamentary Joint Committee on Human Rights raising this important point, and I am confident that protecting the courts' discretion will ensure that all are treated fairly.
Schedule 2 to this bill will better protect consumers and small businesses from unfair contract terms by strengthening the existing protections against unfair terms in standard-form contracts. Standard contract terms are a commonly used and cost-effective option for businesses, as they avoid costs associated with negotiated contracts. An unfair contract term is one that's one sided and excessive and isn't necessary to protect one party's interests but causes detriment to the other party. Protections were first introduced in 2010 for consumer contracts and in 2016 for small business contracts, to deal with terms that caused significant imbalance in the parties' rights and obligations.
However, consultation with stakeholders suggested that unfair terms are still prevalent. While courts presently have the power to void unfair contract terms, what has become clear is that it is necessary to introduce strong deterrents. That's partly because consumers and small businesses generally lack the bargaining power to effectively review and negotiate terms when entering into contracts with larger parties. The hallmark of effective legislation is that it has a deterrent effect on the behaviour it seeks to regulate. It is unfortunately evident that unfair contract terms remain a significant problem.
What do we mean by unfair contract terms? Let me take the House through some examples. In one case, the ACCC raised concerns about contracts between farmers and milk processors in the dairy industry. The contracts allowed milk processors to unilaterally change basic supply terms, such as the price they paid, without giving farmers the option to terminate the contract. The contracts also required that farmers comply with lengthy notice periods before terminating the contract, while giving milk processors much greater flexibility to terminate the contract.
In another case, a contract between a potato wholesaler and potato growers included terms that allowed the wholesaler to unilaterally determine or vary the price it paid farmers for potatoes; unilaterally vary other contract terms; declare potatoes as wastage without a mechanism for proper review; and prevent farmers from selling potatoes to alternative purchasers. In another case, the ACCC noted that chicken growers were being locked into contracts with meat processors that allowed processors to force growers to upgrade their facilities to fit with the needs and preferences of the processors.
The ACCC has also raised concerns about a supplier of serviced office space that was imposing on tenants terms that allowed the supplier to automatically renew contracts unless the customer opted out; unilaterally increase the contract price; and unilaterally terminate a contract. There was even a contract term that allowed the supplier to keep a customer's security deposit if the customer failed to request its return. In another case, the ACCC raised the issue of a company which leases photocopiers, scanners and printers to thousands of small businesses. Its contracts contained unfair terms such as automatic renewal that meant contracts were automatically renewed unless the customer cancelled a certain number of days before the end of the contract; termination payment terms that required customers to pay excessive exit fees when they cancelled their contract; and unfair payment terms that required customers to pay for software licences as part of the agreement even when they had not received the software.
Contract law can be complicated, but the principle is simple: big and powerful firms must stop putting unfair terms into their contracts with consumers and small business. This bill will introduce stronger deterrents by prohibiting, through civil penalty provisions, the use of and reliance on unfair terms in standard form contracts. It will also provide a 12-month transition period that will allow businesses time to prepare. The bill will also expand the class of contracts that are covered, to ensure that a larger number of small business contracts are afforded protection. The government's expectation is that regulators will continue to take a reasonable and proportionate approach to enforcing these protections. These amendments will ensure customers and small businesses get a fair go when entering into standard-form contracts with larger partners.
Since at least the days of Adam Smith, economists have recognised the central role of competition in driving growth and productivity. If we are to increase living standards and deliver for consumers, the Australian economy needs a dose of competition reform. By strengthening the deterrents against bad behaviour by monopolists, we make our economy fairer, more dynamic and more competitive. I commend this bill to the House.