Finance Finance News The ‘effects test’ war that just won’t go away

The ‘effects test’ war that just won’t go away

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The Turnbull government has shown remarkable agility by moving forward on a number of reform fronts, while also dealing with the unexpected shocks flowing from terrorist attacks and the Syrian crisis.

But when, or if, things settle down it’s going to have to pull off even more acrobatics if it is to convince the small business community – the heart of the Liberal constituency – that it’s still on their side.

The looming battle will be over the much-discussed ‘effects test’ that Prime Minister Malcolm Turnbull and Treasurer Scott Morrison want to delay making a decision on until at least March.

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The introduction of an effects test into Australian competition law is one of the 12 ‘not rejected’ recommendations of the root and branch Harper review into Australia’s competition laws.

‘Not rejected’ in this case means ‘too hard to pursue at this time’. Trouble is, it is not going to get any easier to pursue before the next election.

coles woolworths
The big players in the industry strongly oppose the ‘effects test’. Photo: Getty

That’s why, come March, small business owners and their representative industry groups will be raising merry hell over the government’s failure to act on the effects test.

They want competition law to state that the ‘effect’ of a dominant market player’s actions is enough to trigger a ruling by the ACCC that it’s being anti-competitive, rather than any ‘intention’ needing to be proved.

So Coles and Woolies, for whom an effects test would most immediately be a problem, are complaining very loudly through the BCA that they would not be able to innovate and cut prices nearly as much, if they thought there was a risk the ‘effects’ looked anti-competitive.

Indeed, the BCA sent a letter to the Abbott cabinet in that government’s dying days giving eight pages of examples showing how competition would be harmed by an effects test, and how consumers would pay more as a result.

It’s a beautifully constructed piece of sophistry.

And it is sophistry, because it wants politicians, academics, policy wonks and media commentators to answer the charges it lays out, rather than ask the fundamental question about Coles and Woolies supermarkets: why are they so expensive when compared with similar overseas operations, with many fresh food markets, or with the discount competitors that manage to find geographic footholds nearby?

If their prices are indicative of what well-functioning competition looks like, then heaven help Australian consumers if they are ever forced to stop what the BCA thinks is ‘innovation’ and ‘discounting’.

Two new innovative supermarket formats have emerged in the past decade – the Aldi chain, which is still spreading out through the states, and the bulk-purchase Costco model.

small business
“The human cost is … marriage breakdowns, self-harm, suicide, bankruptcy.” Photo: Getty

Their prices are dramatically lower across a range of groceries. And while it’s true they offer goods that in many cases are of lower quality, and offer less choice in product lines, somewhere between their competitive price points and the Coles/Woolies price points is where a real ‘free market’ in groceries would position the majors.

And that’s before even considering the supplier side of the equation.

The successful prosecution of Coles in 2014 by the ACCC for unconscionable conduct illustrated what a gentleman’s handshake Australian competition law is – that handshake being three-way, between the corporations, compliant federal governments of both stripes, and the powerful Shop, Distributive and Allied Employees Union that represents the bulk of the supermarkets’ permanent workers.

The Federal Court found that: “Coles’ misconduct was serious, deliberate and repeated. Coles misused its bargaining power … Coles treated its suppliers in a manner not consistent with acceptable business and social standards which apply to commercial dealings. Coles demanded payments from suppliers to which it was not entitled by threatening harm to the suppliers that did not comply with the demand. Coles withheld money from suppliers it had no right to withhold … Coles’ practices, demands and threats were deliberate, orchestrated and relentless …”

Council of Small Business of Australia CEO Peter Strong is right at the forefront of the campaign to get the Coalition government to prevent this kind of market abuse – in part by allowing small businesses to pursue court action without risk of being bankrupted by court costs if a preliminary hearing finds such an action ‘in the public interest’.

Mr Strong was furious when the Abbott government blocked former small business minister Bruce Billson’s work on the effects test. And he’s furious again that the Turnbull government appears to be rolling over for the big end of town without heed to the dozens of other industry groups, including COSBOA and the Australian Chamber of Commerce and Industry, who want the Harper review effects test to be made law.

He told The New Daily this week: “The human cost to suppliers and other small businesses is marriage breakdowns, self-harm, suicide, bankruptcy.”

The inability to pursue ‘abuse of market power’ provisions in current competition law leaves many aggrieved small businesses nowhere to go … except, perhaps, to the ballot box to register a protest vote.

That is the hurdle the ‘agile’ Turnbull government faces with its core voters on the way to the next election.

Read more columns by Rob Burgess here

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