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Monday, 27 March 2017
Page: 3237

Mr CRAIG KELLY (Hughes) (17:18): People sometimes ask the question of me: what is the difference between the Liberal and Labor parties? There are many differences, and one of the fundamental differences is that, when Labor members rise to speak in their place, they do so as soft puppets of the union, merely chanting the union line and devoid of individual thought, and no dissent or contrary opinion is allowed. In contrast, on this side of the House, we evoke the spirit of Sir Robert Menzies. We are allowed—in fact, encouraged—to have individual thought. As backbenchers, we are free to express contrary opinions. This is a great privilege offered by the Liberal Party and one that I intend to use now.

Just for clarification, my views are not those expressed by the opposition in regard to the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016. In fact, I listened with great interest to the member for Fenner's contribution to this debate and it seems that he is as clueless on competition policy as he is on the workings of our share market, with his recent most embarrassing comments that five entities owned and controlled the majority of the shares. What an embarrassment—ridiculed and laughed at by every serious economics commentator in this nation, and yet that is the shadow Assistant Treasurer in this parliament.

When it comes to debate on competition policy, it is very important to set out what someone's core beliefs are. My core belief is belief in free markets, that free markets achieve the greatest prosperity for the greatest number of people, and that is what our history is showing. But the free markets are not something that are just naturally occurring. For a market to work properly, we must have some regulation on misleading and deceptive conduct. We must have some regulation on coercion, whether it is physical or economic coercion. The phrase we often hear, 'protecting competition and not competitors', simply gets the cart before the horse. What we should be trying to do with competition law is protect competitive opportunity to engage and enlarge individual liberty. We need to make sure with our competition policy that the individual that wants to have a go and start their own business rather than being a unionised employee of a big corporation does not have their opportunities restricted by any competitive practices designed to eliminate them.

I think my core beliefs were best put by US President Teddy Roosevelt over a century ago when he said:

It is of the utmost importance that in the future we shall keep the broad path of opportunity … open … it shall be not only possible but easy for an ambitious man, whose character has so impressed itself upon his neighbors that they are willing to give him capital and credit, to start in business for himself, and, if his superior efficiency deserves it, to triumph over the biggest organization that may happen to exist in his particular field. Whatever practices upon the part of large combinations—

that was the word they used then for large businesses—

may threaten to discourage such a man, or deny to him that which in the judgment of the community is a square deal, should be specifically defined by the statutes as crimes.

What denies an individual opportunity is anticompetitive price discrimination, buyer induced price discrimination, and predatory conduct, both predatory pricing and predatory buying. This is important not just for the individual but for our society. Overly concentrated markets are bad for both consumers and wealth creation.

We need to encourage individuals to start up and have a go. Look at some of the most recent companies. It is the small firms that play a crucial role in experimentation and innovation and that drive the technology change that creates wealth and drives prosperity. Companies such as Apple, Google and Disney all started in a garage. Walmart, the world's largest retailer, started with just a single store. This is what we want to encourage—entrepreneurialism, free markets and individuals running their own businesses without fear of being driven out by a larger competitor using anticompetitive practices.

This bill has been described as introducing an effects test. Some members of the opposition have talked about the debate on the effects test over a number of years, but that was a completely different effects test to what this bill introduces. I will go through that. Firstly, section 46 currently provides that a corporation with a substantial degree of market power cannot take advantage of that power for the purpose of (a) eliminating or substantially damaging a competitor, (b) preventing the entry of a person into a market and (c) deterring or preventing a person from engaging in competitive conduct. So it is damaging a competitor. If we replace that word 'purpose' in section 46 with the word 'effect', the act will be much more usable and more small-business friendly. It will enable section 46 to actually work in practice.

But that overlooks section 46(7) of the act, which says:

… notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person …

So what it is saying, as Professor Corones notes in his legal text, is that the courts may draw inference from the conduct or any other circumstance without the need for direct evidence. A requisite purpose may be inferred on the basis of objective evidence, so when it goes to proving purpose there is no need for a smoking gun or some form of document that says, 'This was our purpose—to eliminate a competitor.' Purpose can be inferred. If we look at the history of section 46, there is hardly a single case where it has fallen over because the ACCC was unable to prove purpose, yet it has been put that that is the entire problem with the act.

What has been done in this so-called effects test? It is not the effect of damaging a competitor. The words have been changed. A new test has been added that requires not only damage to a competitor but also a substantial lessening of competition. That is completely different. The effect of substantially lessening competition is completely different to the effect of damaging a competitor. So now we have a section that starts off with the requirement that you have a substantial degree of market power and ends with the requirement that the conduct will result in a substantial lessening of competition. Having those two terms—the test at the front and the test at the back—is actually contradictory. It is very difficult to envisage a circumstance where a firm actually has a substantial degree of market power and then goes on and engages in conduct that results in a substantial lessening of competition because, if you have a substantial degree of market power, already the situation has occurred where there has been a substantial lessening of competition. So we need to be very careful about what we are talking about.

I will give you some examples of what is a substantial lessening of competition. Let us look at when St George merged with Westpac. The four largest banks in this country do not have a substantial degree of market power, because the test for a substantial degree of market power is the ability to raise your prices without losing customers to your competitors. If Westpac put up their rates, in theory customers could go to the Commonwealth Bank, the ANZ or the NAB—and likewise. When there was the proposal for St George to be taken over by Westpac the ACCC said:

The ACCC does not consider that there is sufficient evidence … required to show that the removal of St George as an independent player would be likely to lead to a substantial lessening of competition.

For small business, under the new test of section 46, they now have to show that not only were they damaged and run out of town by a company with a substantial degree of market power and it was done for an uncompetitive purpose, but also that that resulted in a substantial lessening of competition. This raises the bar rather than actually lowering it.

The other issue is that this new bill eliminates some of the existing sections of the act. It takes away the specific provision that we have on predatory pricing. The problem we have with the previous act when it comes to predatory pricing is that, to be guilty of an offence of predatory pricing, you must possess a substantial degree of market power at the time you engage in the act. As Justice McHugh said in the Boral case:

Conduct that is predatory in economic terms and anti-competitive may not be captured by s46 simply because the predator does not have substantial market power when it sets out on its course to deter or injure competitors. That may be because until it achieves its objective it has no substantial degree of market power.

…            …         …

Section 46 is ill drawn to deal with claims of predatory pricing in those conditions.

That problem was fixed with section 46(1AA). We are now repealing that in its entirety. Now, under the new provisions, a company will be able to engage in conduct with a specific purpose—a predatory pricing scheme selling below cost with the intention of eliminating a competitor for the purpose of obtaining a substantial degree of market power—but, because when they engage in that conduct, if they do not have a substantial degree of market power, they are not caught by the act.

There is some concern about how this act will be interpreted. We had hearings with the Standing Committee on economics earlier this year, and the ACCC chairman suggested that the changes being made to section 46 would help him police the banking sector and stop the banks from engaging in anti-competitive conduct. He thought there was not quite enough competition in the banking sector. I asked the chairman, 'Can you tell me which bank has a substantial degree of market power, and what market that is?' We had the entire brains trust of the ACCC there, and not one of them could come up with an example of which bank had a substantial degree of market power. That is the problem and the difficulty with the current section 46. It does not apply unless a company has a substantial degree of market power. That is the issue. We are actually, in my belief, making it harder with this act to prove a breach of section 46. We are enabling a company that has a substantial degree of market power to eliminate a smaller competitor from a market by using that market power, but providing that does not result in a substantial lessening of competition; they can now do that.

That brings me to a difficult position that I have. I have concerns with this bill. However, I acknowledge that there are many in the small business community that are in support of this. I also acknowledge that the coalition took this as a policy statement to the last election, and, as a member of the Liberal Party, I stood behind that commitment. That is what people in my electorate voted for; therefore, I am compelled to support this legislation in the House. But we will see. I could be wrong. It will be a number of years until the courts determine the effect of this legislation. I hope that I am wrong.