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Economics Legislation Committee
Foreign Investment Review Board

Foreign Investment Review Board


Senator KETTER: I would like to start with some questions regarding the Harper review recommendation to change the current misuse of market power provision or section 46 from the so-called 'purpose test' to the 'effects test'. I note there is some controversy about that. The effects test, as suggested, centres around understanding what is meant by the substantial lessening of competition, which apparently has a particular meaning under the Competition and Consumer Act. Could you start by explaining to me what is meant by 'substantial lessening of competition'.

Mr Dolman : Substantial lessening of competition is about creating barriers in a marketplace to competition. It is not related to the individual competitors in the market but rather to structural changes in the level of competition within a market. It is a concept that is used in other parts of the Competition and Consumer Act, including in section 45, which is contracts that have the effect of substantially lessening competition, similarly in section 50 to do with mergers.

Senator KETTER: Could you give me a practical example of a substantial lessening of competition.

Mr Dolman : I believe, for example, in the Cement Australia case, which has received some publicity, the respondent in that case was found to have substantially lessened competition when they bid for all of the supplies of fly ash, which is a by-product of coal power plants used in cement manufacturing, thereby precluding or putting at a competitive disadvantage other participants in that industry.

Senator KETTER: If I could put a practical example to you and get your assessment: if there are three supermarkets in a local area and two of them are priced in a way that meant the third went out of business, would that be a substantial lessening of competition.

Senator CANAVAN: Chair, could I say that I believe we usually have a restriction against questions that go to hypothetical matters and I think particularly in this instance asking an officer to interpret a contentious piece of law, which obviously with these sorts of cases could go to court, I think is stretching into that territory.

Senator WONG: Chair, on the point of order, I understand the National Party is obsessed with this point.

Senator CANAVAN: We are very concerned about small business, Senator Wong.

Senator WONG: Regardless of the broad economic effect, but leaving that policy argument to the side, it is being asked in order to understand the definition. If the officer wants to come up with his own example to explicate the definition—

Senator CANAVAN: I am fine with that. On the point of order, all I would say is the question was very much prefaced with an 'if' and was of a hypothetical nature. If Senator Wong is only seeking that part of the information, that is perfectly reasonable.

CHAIR: Let us go ahead.

Senator WONG: Thank you.

Mr Dolman : Obviously the judgment would depend entirely on the circumstances of the case and one case would be different from another. It really depends upon the conduct in question. The test is whether the conduct would create barriers to entry or barriers to competition in the market. It is not related to how many competitors are in the market.

Senator KETTER: So it is uncertain. It is going to be difficult for the businesses in question to consider in advance whether they are going to fall foul of the effects test?

Mr Dolman : I am not sure that is an accurate description of what I said. As with all aspects of law, the judgements of courts depend upon the facts and the situation put before the judge. This is a test which has been in the act for a long period of time in a number of other sections of the act.

Senator KETTER: But if I am a retailer sitting around a boardroom table and wanting to make a decision about how deeply I am going to discount how can I be sure that I will not be breaching a competition law?

Mr Dolman : The level of uncertainty is a position that some stakeholders have put forward against the law, and other stakeholders who are in support of the recommendation Harper has put forward have taken the contrary view.

Senator KETTER: So you accept that there would be uncertainty in that situation. Wouldn't that mean that perhaps I would compete a little less aggressively if there were some uncertainty there?

Mr Dolman : Sorry, I did not necessarily say that there was uncertainty; I said that stakeholders have a range of views as to whether this would create more uncertainty or not. I think it is fair to say that there is a level of uncertainty with the current law, and if the law is amended there will be a level of uncertainty with the new law as well.

Senator KETTER: I think the Harper review itself acknowledged that there would be uncertainty created.

Senator CANAVAN: I think that it is fair to say, in context, that it also recognises an existing test, as Mr Dolman has pointed out.

Senator WONG: I am—

CHAIR: Order!

Senator CANAVAN: If you want to run questions from the shoppies' union, that is fine. Do not expect there to be no interference.

Senator WONG: Is that the best you could do?

Senator CANAVAN: That is exactly what you are doing.

CHAIR: Order! Are we good? We are all good. Right. Proceed.

Senator KETTER: My question was—

Senator WONG: We might have the numbers here, because he—

Senator CANAVAN: Yes, you would. You probably would. You would have them without him.

Senator WONG: You are on your own.

Senator CANAVAN: We are used to that, Penny!

CHAIR: Stop talking about me; I am in the room. Let's get on with it.

Senator WONG: It is a Lib-Labor agreement against the bench. That is when the Greens line up together. There you go.

Senator CANAVAN: Actually, he is a small businessman, too.

CHAIR: Order!

Senator KETTER: Mr Dolman, you have accepted that some stakeholders have identified uncertainty as being an issue with the proposed effects test.

Mr Dolman : That is correct. They have been quite vocal in that regard.

Senator KETTER: My example of a real-life businessperson wanting to make decisions about how aggressively to compete in the real world is a real one, isn't it?

Mr Dolman : You are asking me my opinion of the law. What I have said is that some stakeholders have put forward that position.

Senator KETTER: So wouldn't it be a natural response from some of those businesspeople to need to seek legal advice before they run afoul of the potential competition law?

Mr Dolman : Again, that is a matter of opinion about the conduct of the business.

Senator KETTER: Has the Treasury conducted any modelling into the possible impact of the effects test?

Mr Dolman : In terms of the economic impact?

Senator KETTER: The possible impacts of the effects test?

Mr Dolman : That is not something we have modelled, no.

Senator KETTER: Why haven't you done that?

Mr Dolman : I think it is fair to say, with these sorts of legislative changes, it is normal practice—certainly, in my experience—not to conduct modelling of those. There are things for which modelling is a useful tool to provide greater insight into the effects of policy—tax policy is highly conducive to modelling, for example, in some situations. With these sorts of legislative changes, it is more difficult.

Senator KETTER: All sorts of policies are modelled from time to time. I am not quite sure I understand why this one is not the subject of modelling?

Senator CANAVAN: Can I ask a follow-up? Was there any modelling done of the government's—

Senator KETTER: Could I just get an answer to that first question?

Senator CANAVAN: I think it is relevant. We often allow follow-ups.

Senator WONG: No, he has not even answered the question.

Senator CANAVAN: In this committee, Senator Wong, we often do have a free-ranging follow-up.

Senator WONG: Right. I am terrible sorry, Senator Canavan, that—

Senator CANAVAN: And sometimes senators come in here and that level of amity disappears.

Senator WONG: I am terribly sorry for something like making sure Senator Ketter can get an answer before you interrupt. I know that must be upsetting for you.

Senator CANAVAN: Sorry, Senator Wong, I did not interrupt the question.

CHAIR: Order! I will say it one more time: order!

Senator WONG: I—

Senator CANAVAN: Senator Wong, we did actually understand it—

CHAIR: Do you want me to just suspend you two for 10 minutes? Put the two of you in the naughty corner?

Senator WONG: No.

CHAIR: If anybody has supplementary questions, can they address them through me please. If you could just answer Senator Ketter's question, and we will get a bit of order. I will give you that opportunity to discuss.

Mr Dolman : So to repeat: we have not done economic modelling of the economic impact of the Harper proposal. As part of supporting the government's consideration of the Harper review and its 56 recommendations, we have considered the regulatory impact that those recommendations, if they were to be adopted, may have on businesses. That is an assessment of compliance costs not the economic impacts of the policy. So that work has been done.

Senator KETTER: Has anybody within government done work on the economic impact?

Mr Dolman : I am not aware of any modelling of that.

Senator CANAVAN: There have been various changes to these particular provisions in the competition laws over the last few years, including a major change which renamed the Trade Practices Act the Competition and Consumer Act in, I think, 2010. Can you recall if there was any economic modelling done of those changes to competition laws?

Mr Dolman : I am not aware of any modelling of those changes being done.

Senator KETTER: How can we be certain that this change will not increase prices of everyday essential items?

Mr Dolman : The Harper review has put a position about a policy, and the Harper panel's recommendation is that the policy they put forward will be an improvement for the economy, and that is based on extensive stakeholder consultations. That is the position that the panel reached.

Senator KETTER: Has Treasury done any work in relation to that issue?

Senator WONG: The price effect.

Mr Dolman : We have not modelled price effects.

Senator WONG: He did not ask 'model'. Have you provided advice in relation to the price effect of the change?

Mr Dolman : I honestly cannot recall. I am happy to take it on notice.

Senator KETTER: Going back to the Harper review's findings, it made a comment, as I said before, that amending section 46 would involve some uncertainty and that that uncertainty may lead to some cost. Do you agree that there would be uncertainty and cost as a result of the change?

Mr Dolman : As a matter of regulatory impact analysis, it is normal when one does that type of analysis to factor in a level of cost associated with legal advice when a law changes. There are other elements of the Harper recommendations which would relieve the burden from businesses. They make recommendations around streamlining mergers, for example. There are pluses and minuses to net off.

Senator KETTER: And you have done some work on that particular cost?

Mr Dolman : We have done a regulatory impact analysis in relation to the Harper recommendations.

Senator KETTER: In terms of section 46 in particular?

Mr Dolman : Across all of the recommendations.

Senator KETTER: Is there a breakdown for section 46?

Mr Dolman : I do not have that document in front of me.

Senator KETTER: Can you take that on notice?

Mr Dolman : I can take that on notice.

Senator KETTER: Are you aware that 10 out of 12 government reviews, since 1976, on the issue of the effects test have recommended against its introduction?

Mr Dolman : I am aware that there have been a number of reviews that have reached a different conclusion.

Senator KETTER: Why do you think that is the case?

Mr Dolman : That is a matter of conjecture. You are asking me to put myself in the mind of previous review panels.

CHAIR: Do you want him to go back to 1976?

Senator KETTER: I am going to move on to the issue of credit card surcharges.

CHAIR: Yes, let us get into that.

Senator DASTYARI: Before we do that, I have one quick follow-up on small businesses—on the single touch payroll. What part of Treasury was looking after that? Small business comes under you, Mr Dolman, doesn't it?

Mr Dolman : Revenue Group deals with that issue.

Senator DASTYARI: So Revenue Group was looking at that not—

Mr Dolman : That is correct. It is a tax policy issue.

Senator DASTYARI: I thought that because Minister Billson was looking after it, it would have come under you, but that is not the case?

Senator DASTYARI: We will put that on notice—sorry, I thought, because it was small business, Minister Billson was looking after it and it would come under you. However, that is not the case.

Mr Dolman : Apologies for the confusion: we have a small business tax division in our revenue group.

Senator KETTER: On the government's response to the credit card surcharge issue: the government has announced it would phase in a legislated ban on surcharges that exceed reasonable costs faced by merchants in accepting cards. While it is early days, could you provide some indication as to how the ACCC might undertake this task?

Mr Power : Ultimately, of course, it is for the ACCC to determine how they will implement—

CHAIR: Which will be on in a minute.

Mr Power : The broad structure of the regulatory structure at the moment is that the RBA, if you like—

CHAIR: Now this is a really good answer, Chris, but this is the market group's interpretation.

Senator KETTER: I am interested in your—

CHAIR: We were sort of in the first paragraph. Let's go: Mr Power, you have the call.

Mr Power : I was just pointing out that the RBA has a role currently and how surcharging is set within the payment system. What the government said is that the ACCC will enforce a ban on excessive surcharges. As I said, it is up to the ACCC how they proceed with that, but they will no doubt raise awareness of the rules and take an educated approach. Then, as they have developed their knowledge within the market and amongst merchants, I am sure they would move to make enforcement actions.

CHAIR: They are in the room behind us and you will be able to ask them shortly.

Senator KETTER: It will be left to them to determine what is a reasonable cost?

Mr Power : No, the RBA at present has the ability to set rules, or would have the ability to set rules, on what is a reasonable cost. The ACCC would then be responsible for enforcing that as it applies to merchants.

Senator KETTER: Would you envisage that they would be proactively approaching businesses or would you expect them to adopt a complaints based approach?

Mr Power : Ultimately, that is a matter for the ACCC. I do not think it is something that we can comment on.

Senator KETTER: Has there been any consideration of whether the ACCC will need any further funding to undertake this task?

Mr Power : There has through the government's process of considering the response to the Financial System Inquiry.

Senator KETTER: How far down the track is that? Is there any quantification of that?

Mr Power : As I said, the government considers that process in its cabinet process and then it would announce any outcomes in the budget process.

Senator KETTER: This change to policy—do you believe that this addresses the key competition and consumer issues that relate to credit card surcharging?

Mr Power : Certainly, to the extent that there has been a large amount of disquiet about surcharges that are in excess of the costs faced by merchants, this will relieve those pressures for consumers. To the extent that there are any surcharges applied—and surcharges are applied sparingly—the RBA's data is that they are supplying about four per cent of transactions. But, to the extent that they are applied, they will now not be above the cost of actually accepting a card.

Senator McKIM: I want to go back to the previous topic, which is the effects test and the Harper review. You have just given evidence to the committee that you have done a regulatory impact analysis on all of the recommendations, as I understand it, of the Harper review, including the recommendation around the effects test. Is that a publicly available document?

Mr Dolman : The nature of regulatory impact analyses is that they are released after the government has considered its position and announced its position. So that is a document that will become public later in the piece.

Senator McKIM: I am going to ask you a question anyway and you can take it or leave it if you think it is inappropriate. I am sure Senator Sinodinos will be there if necessary.

CHAIR: I will work it out; you go for it.

Senator Sinodinos: I defer to the Chairman.

Senator McKIM: Very wise of you, Senator Sinodinos.

CHAIR: Hit us with it.

Senator McKIM: Thank you, Chair. Does that regulatory impact analysis specifically assess the impact or the benefit for small business of introducing an effects test as recommended by the Harper review?

Mr Dolman : Again, the nature of regulatory impact analyses is that they consider the costs for businesses and those figures are based on an assessment of the number of businesses affected. Some of them would be small businesses and that would be taken into account in that sort of assessment. If your question is about the economic impact of the policy, I think I said earlier that we have not done that sort of modelling.

Senator McKIM: Do you mean in terms of the broader economy in Australia?

Mr Dolman : Exactly.

Senator McKIM: I am asking specifically about the small business sector, which would obviously be a subset of the broader economy, and whether the regulatory impact analysis specifically assesses the benefit or the impact on the small business sector or on SMEs.

Mr Dolman : If I can clarify further, regulatory impact analyses are about compliance costs. The misuse of market power provision only relates to certain conduct undertaken by businesses with substantial market power. Predominately, they are large businesses.

Senator McKIM: So the compliance cost would almost, by definition, be on larger businesses rather than small businesses? Therefore my understanding, and please correct me if I am wrong, is that the regulatory impact analysis has considered that matter, which is compliance costs which by definition would be on larger businesses, and does not consider the potential benefits for small business of introducing an effects test as recommended by the Harper review. Is that an accurate thing to say?

Mr Dolman : Again, if I can seek to clarify, I think when we move beyond regulatory impact analyses, which are about compliance and legal costs and about changes in work practices and so forth, when we move beyond that to look at the costs and benefits to society, to the economy as a whole, that is a much more challenging type of modelling exercise and that is the nature of the economic modelling that we have not undertaken.

Senator McKIM: Will you be undertaking modelling along those lines, or is that now a question for government to consider and ask you to do that?

Mr Dolman : We are not currently undertaking modelling. But, as I think I said earlier in the piece, looking at the effect of laws on the outcomes of markets is a very difficult type of modelling to do.

Senator McKIM: I understand that, but it is also really important information for the parliament to have as it considers potential reform in this area. You have said it would be a difficult piece of modelling. Presumably that means it is not an impossible piece of modelling. Would that be something that the department would do off its own bat as part of the normal process of considering these things, or would that require a government decision to trigger that sort of modelling to be done?

Mr Dolman : It could be different in different circumstances. But, to reiterate, I am not sure whether it is possible or not possible to do this sort of modelling. I am not aware of anyone in the world doing this sort of modelling in any reliable way.

CHAIR: We have covered this a bit already.

Senator McKIM: I understand that, but I am in two committees at once, Chair. I apologise.

Senator CANAVAN: Would it be fair to say, Mr Dolman, that if you were to do such modelling it would rely on quite a large number of assumptions that would have to be made about the effects, and therefore the modelling itself would only be as accurate as those assumptions that are made?

Mr Dolman : That is certainly correct.

Senator McKIM: That is correct in the case of every single piece of modelling that would be done.

Senator CANAVAN: I am not going against you at all.

Senator McKIM: Thank you, Chair, I am not going to debate Senator Canavan about this. I appreciate this feedback.

CHAIR: We are all happy here. We are all in big rooms—a lot of us here are all sort of covering ground again. Senator McLucas.

Senator McLUCAS: I want to ask some questions about insurance, please. Can I get an update on the budget measure to conduct engineering assessments for strata titled properties in North Queensland?

Ms Quinn : We are still in discussions with Queensland officials on that budget measure. There is no agreement in place at this stage. We are still in the design stage.

Senator McLUCAS: Why is it taking so long?

Ms Quinn : One of the reasons for the hold-up was partly due to a change of government in Queensland.

Senator McLUCAS: That was a good thing.

Ms Quinn : So that necessitated caretaker periods and a settling in process. We are in discussions. Things are progressing but they have not been finalised.

Senator McLUCAS: Has the contract been signed with Queensland around this 12½ million?

Ms Quinn : At this stage, no.

Senator McLUCAS: So I cannot go to how the program will be rolled out because you have not finished negotiations?

Ms Quinn : That is correct.

Senator McLUCAS: Do you know how many engineering assessments the program will support?

Ms Quinn : That depends on the design features of the program, so we cannot have that information at the moment.

Senator McLUCAS: To the task force now, please. Can you provide an update on the task force work? We have the most recent interim report—so following from that point on.

Ms Quinn : The task force put out the interim report, as you mentioned. It received submissions from various stakeholders. It is considering those submissions and working through preparing a final report for consideration by government.

Senator McLUCAS: Has the relevant minister—which has now changed—provided any feedback on the task force interim report?

Ms Quinn : There have been conversations between the task force and the minister, but I am not aware of any formal directions. The task force has been set up to independently assess and provide information.

Senator McLUCAS: Is the final report on track for delivery next month?

Ms Quinn : That is my understanding. Yes.

Senator McLUCAS: During the June estimates, I asked for the membership of the task force. It was taken on notice. I then received a response. It did not mention any names apart from Mike Callaghan, who is leading the task force. What is the reason for that? Why couldn't you give me the list of names?

Ms Quinn : My understanding is: for public officials who have been announced as leading the program, it is not usual that we list all of the names of all of the people who are of the secretariat. We do identify departments, expertise and things like that, but it is not usual—

Senator McLUCAS: Level?

Ms Quinn : We can provide level, if that is required. But we do not usually provide individual names of the officials.

Senator WONG: The department and the level—so 'APS' or 'EL' whatever.

Ms Quinn : It is a range of levels.

Senator McLUCAS: I understand that.

Senator WONG: How many in each?

Ms Quinn : I have to take that on notice.

Senator WONG: Yes. So you might say, 'Three EL2s, two—'

Ms Quinn : Sure.

Senator McLUCAS: How often does the task force meet with the reference panel?

Ms Quinn : I am happy to take that on notice. It is a task force that is set up, and it is independent. I do not actually participate in its activities. But it does meet fairly regularly—not just in person but also through exchange of emails and considerations like that.

Senator McLUCAS: How often does the task force itself meet?

Ms Quinn : The task force is together on a daily basis working through the issues.

Senator McLUCAS: My final set of questions go to the comparative website. It went live on 31 March. How is it being received? What sort of feedback are you receiving?

Ms Quinn : The comparison website is run by ASIC, so ASIC would have more of the details on how it is going. I am happy to take that on notice and pass it to them in terms of the number of hits and things like that. That might be the best way to answer that question. If you are interested in the number of hits and types of areas that they have looked at then I could certainly take that on notice and ask ASIC to provide that information.

Senator McLUCAS: Perhaps all of these questions might go to ASIC, actually. How many insurers currently provide information for the site?

Ms Brown : I have some information as well. On the website there are currently nine insurers covering 12 brands. I have numbers of hits between 31 March and 30 September. It was 4,699 people accessing the site. They performed 5,541 comparisons.

Senator McLUCAS: So those 4,699 are absolutely separate, different people, or is it like me going there three times?

Ms Quinn : It is individual people. There are 6,275 individual sessions. That might be people going back over different time periods. There are nine insurers, of which there are 12 brands because insurers have multiple brands.

Senator McLUCAS: Thank you. Could I have on notice a breakdown month by month?

Ms Quinn : I am looking at a chart which we can provide you on notice. It is fair to say most of the activity happened in the early stages of the launch.

Senator McLUCAS: I expected that. How many in last month, for example?

Ms Quinn : I will have to take that on notice. Because there are so many in the first few, it is hard to see on the diagram what is happening later. We will give you a list.

Senator McLUCAS: The frequently asked questions section of the website says it will be updated regularly. How will that take place?

Ms Quinn : These are operational matters that we will have to take on notice for ASIC.

Senator McLUCAS: Thank you. Under the disclaimer section on the website there is a statement about Finity Consulting Pty Ltd. Are you aware of that statement?

Ms Quinn : No.

Senator McLUCAS: It says:

The natural disaster risk information presented on this website are measures derived from an assessment by Finity Consulting Pty Limited of the insurance risk from cyclone, flood and storm for individual properties. This independent measure may differ significantly from the risk assessment used as a basis for the premium set by individual insurers.

What is the purpose of that statement?

Ms Quinn : It would call for speculation, but there are usually disclaimers about the basis on which pricing occurs. It would have to be clear when people are looking at the analysis of Finity that that is not exactly the same as what individual insurance companies would be using in their own assessments. All the individual insurance companies would have their own assessment of risk and therefore use that in their pricing of risk. It would seem that it is there to make sure people can use it to question insurers but cannot say, 'This is what you're using.' I imagine it is clarity.

Senator McLUCAS: Thank you.

CHAIR: If there are no further questions, we will move on to the ACCC. Thank you very much.