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Thursday, 7 July 2011
Page: 8005

Mr CRAIG KELLY (Hughes) (11:58): I rise to speak on the Competition and Consumer Amendment Bill (No.1) 2011 and to support the comments of my good friend the shadow minister for small business, competition policy and consumer affairs, the member for Dunkley, and I also support the thoughtful comments of my colleague the member for Bradfield on this bill. We all know the great wisdom of Adam Smith, who noted back in the year 1776:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

However, Adam Smith's famous quote continued:

It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.

Therefore, following on from the lead of American antitrust law, we rightfully have a provision in our Competition and Consumer Act, formerly known as the Trade Practices Act, which makes it unlawful for a person to make a contract, an arrangement or an understanding which has the purpose, or is likely to have the effect, of substantially lessening competition.

This bill aims to deal with the meaning of the words 'arrangement' and 'understanding' which can be achieved through price signalling. However, not only is this bill badly flawed in many ways but also it provides yet another case study of this government's mismanagement. But at least, thankfully through the work of the shadow minister for small business, competition policy and consumer affairs, some common­sense has prevailed and some of the obvious flaws of this bill look like they may be remedied with amendments.

Firstly, when considering the issue of price signalling, it also worth noting the comments of competition law expert Profes­sor Frank Zumbo, who has insightfully noted that the problem of price signalling is merely a symptom of an illness. That illness is the duopolies and oligopolies that many of our markets in Australia have degenerated into as a result of the failed ideology that big is better. It is only in highly concentrated markets that price signalling becomes as problem.    If you have laws that, as our competition laws currently do, mistakenly encourage and reward bigness and work to protect duopolies and oligopolies from their more efficient and smaller competitors, price signalling can become a problem.

The textbook might describe price signalling with the following example. Let us say supermarket A wants to jack up its prices, but before supermarket A jacks up its prices it wants to ensure that supermarket B will follow its lead and jack up its prices as well. In theory, supermarket A might not be confident that supermarket B will follow its lead and increase prices immediately. Also supermarket A may wish to send a message to its competitor, supermarket B, that supermarket B has nothing to fear if it raises its prices as supermarket A will respond immediately and match the same price increases. Therefore, to encourage super­market B to raise its prices, supermarket A could engage in price signalling by making public statements whereby a wink is as good as nod. So, the very minute supermarket A jacks up its price, supermarket B will immediately follow and the cosy club is maintained.

Under the current interpretation of our laws, such tacit collusion falls short of an 'arrangement or understanding', as our courts have interpreted the words 'arrangement or understanding' as meaning that there must be 'a meeting of the minds'. It is difficult to address such tacit collusion with legislation, but in the above example the real problem is that there are only two supermarkets in the market—A and B. It is the type of duopoly which exists throughout most Australian suburbs. Therefore the best way to fix the problem of price signalling is to ensure that there are not only supermarkets A and B in the market but also supermarkets C, D, E, F and G and so on—all in vigorous competition with each other—as in such a highly diversified market, with many competitors, supermarket A can price signal until the cows come home and it will not influence its competitors.

The origins of this bill go back to the ACCC's bungled case against a group of Geelong petrol retailers. As amazing as it may seem, at the very same time as the ACCC were cheering on the supermarket duopoly to engage in third-line forcing by the use of shopper dockets to destroy competition from independent fuel retailers, and as the ACCC was watching on as the big oil companies were manipulating prices to create the weekly fuel price cycle, the ACCC unleashed their legal dogs of war against predominantly small family-owned busine­sses, petrol retailers in Geelong. What a debacle that was by the ACCC, with millions of taxpayer dollars wasted on futile legal proceedings against mainly small family businesses.

The Age reported on 17 June 2005 that an ACCC analyst had fabricated data in a working paper, and that the regulator had omitted data showing when petrol prices fell and by how much. During the case, Justice Peter Gray said the ACCC should seriously examine the way it compiled evidence, and he said about that evidence:

It does not give anything like a complete picture of what is going on.

Justice Grey concluded:

The ACCC must certainly be made to pay the costs of all the respondents who defended the proceedings.

When he says the ACCC must be made to pay, that is the taxpayers—you and me, Madam Deputy Speaker. If the ACCC could not obtain direct evidence of an under­standing, why it did start proceedings? Why did the ACCC not seek an enforceable undertaking, which would saved the taxpayers millions of dollars in wasted legal fees?

The problem of price signalling, being just one of many loopholes in our competition laws, has been evident to this Labor government since the ACCC had their case against small petrol retailers in Geelong thrown out by the Federal Court in 2007—and the ACCC has been complaining ever since. For more than three years this government has been sitting on its hands—typical of this government in relation to competition law reform. All they have given us so far is gimmicks, such as the high farce of Fuelwatch and GROCERYchoice, which do nothing to address the underlying problem of the continued destruction of competition as markets become more concentrated.

With the government asleep at the wheel on competition policy, it has been left to the coalition, through our very learned member for Dunkley, the shadow minister for small business, competition policy and consumer affairs, to act to address the problem of price signalling when he introduced a bill back in November 2010 to deal with this exact issue. Instead of supporting the coalition and attempting to address this problem, the government for months played catch-up football and in so doing delivered a badly flawed bill. There is a simple reason for the government being asleep on the job following the unfortunate stints by the members for McMahon and Rankin as failed competition ministers in the first Rudd government, a government which no less an authority than the current Prime Minister confirmed had lost its way. Although it is universally accepted that the Rudd government had lost its way, just one example of how the Gillard government has wandered deeper and deeper into the wilderness and become hopelessly lost is the government's downgrading of the oversight of one of our most important portfolios, that of competition policy, to a parliamentary secretary, at the very time Australians are being punished by some of the highest rates of food inflation in the developed world. I remember looking through the Gillard ministry when it was announced, and seeing that we had a ministry for social inclusion, a ministry for sustainability and a ministry for privacy but we had no ministry for competition policy. This is an insult to consumers.

So it is little wonder that the government has been caught asleep on this issue and once again found itself playing catch-up football. When you push the pass, when you rush a move, when you sidestep sound policy, when you take shortcuts, this only leads to further mistakes—and that is exactly what has happened with this bill. As reported in the Financial Review of 23 May this year, the chairman of the Law Council's trade practices committee said, when referring to this government bill, that it had had the shortest consultation period he had ever seen and the time permitted for feedback was 'manifestly inadequate'.

One of the many problems with this bill is that it only applies to only one sector of our economy, the banking sector. It is even unclear if it applies just to retail banking, commercial banking or merchant banking. Either price signalling is an anticompetitive problem or it is not. It simply makes no sense for this government to limit this legislation tackling the problem of price signalling to just the banking sector, while leaving other dangerously concentrated sectors such as petrol, groceries and liquor free to engage in anticompetitive price signalling.

The next question is: why is the government seeking to limit this bill to the banking sector only? The Treasurer's second reading speech for this bill stated:

Today I introduce amendments to the Competition and Consumer Act 2010 to crack down on anticompetitive price signalling and to get a better deal for consumers in the banking system.

'Crack down' and 'better deal'—this language indicates that the Treasurer acknowledges that price signalling is a problem in the banking sector and that Australian consum­ers are being done over by our big banks. In the second reading speech, the Treasurer also noted:

… the ACCC has told us there is strong evidence of banks signalling their pricing intentions to each other in a bid to undermine competition.

The question to be asked of the ACCC is: if they believe there is 'strong evidence' that the banks are engaged in price signalling 'in a bid to undermine competition', why on earth did the ACCC allow the merger of St George Bank with Westpac?

The need for a bill on pricing signalling in the banking industry is a clear acknow­ledgment that the Treasurer and the ACCC made a tragic blunder when they allowed St George Bank to be taken over by Westpac and removed as an independent competitor in the market, a tragic blunder that consumers and small businesses are paying for to this very day.

As the ACCC appear to now belatedly admit that we have problems with compet­ition in our banking sector, just look at the 2009 report by Fujitsu Consulting, which found that Australian bank customers pay the Western world's highest bank fees. The report states:

… a lack of competition in Australia meant local banks were collecting $5 billion in fees from consumers, making them the most expensive in the western world.

The report goes on:

The average household is, in our view, paying up to $200 more each year than they should thanks to the wide range of fees and charges levied in Australia, and to the lower levels of competition in the market.

But it is not only banking. Just have a look at the OECD's figures on food inflation and see how Australia rates. These figures simply show how Australian consumers are being punished by the grocery duopoly with some of the highest rates of food inflation in the developed world. These OECD figures are a damning indictment of the uncompetitive nature of our supermarket sector. So why is the government protecting the supermarket duopoly and exempting them from this legislation?

But this is not the first time we have seen this government work to protect the supermarket duopoly from competition. We witnessed the unedifying spectacle of this government closing down GroceryWatch to prevent the consumer organisation Choice from exposing the duopoly's use of geographic price discrimination.

The pitiful excuse given by the Treasurer for protecting the supermarket duopoly from this legislation—again, from his second reading speech—was:

We have been very clear all along that we would only extend these laws to other sectors of the economy after further detailed consideration.

At best, this is simply an admission that the government has failed to think this legislation through and consider all the unintended consequences.

There is no doubt that the bill presented by the member for Dunkley is far superior, because it would prohibit anticompetitive price signalling in a measured and targeted manner and apply the law across the whole economy. More needs to be done to ensure we have more competition, more diversity and more choice for the benefit of consumers. We need effective competition laws which deal with the underlying disease that is eating away at the fabric of our free enterprise system.    We need to stamp out all forms of anticompetitive conduct and ensure that mergers and acquisitions by dominant players in the market are not allowed to continue to knock out the efficient competitors that are so essential to a vibrant and competitive market.

I look forward to working with the coalition in the months and, hopefully, years ahead to bring in policies that deal with this underlying problem and give the Australian consumers the deal they deserve, which they are not currently getting.