Coalition is selling out consumers by removing mandatory factors from effects test

Hard-pressed consumers, struggling with flat wages and rising energy prices, will be dealt another blow this week if the government's competition law amendments pass the Senate. Federal Treasurer Scott Morrison sided with small businesses and against consumers on Thursday when he announced an amendment to his own bill to remove its few pro-competitive safeguards.

The Treasurer's amended bill is not intended to promote competition but to protect small businesses from it. In making his announcement he said as much, pledging to protect more than 2 million small businesses. Protect them from whom? Under-pressure consumers, of course. Competition law is supposed to protect competition not competitors, but 2 million friends is a lot when you're running short of them.

Following an 18-month review of Australia's competition laws, a committee chaired by Professor Ian Harper recommended a total rewrite of section 46 dealing with the misuse of market power. Small-business organisations, farming groups and Master Grocers Australia representing smaller grocery stores lobbied for a so-called effects test. To their delight the Harper review delivered.

No longer would the courts need to be satisfied that the purpose of conduct by a firm with market power was to substantially lessen competition, it would suffice that the effect was to do so. Large businesses, represented by the Business Council of Australia (BCA), opposed the effects test throughout, worried that they could not possibly know in advance what effect their decisions – including those made in good faith – might have on markets.

The Harper report accepted that its recommended amendment ran the risk of "inadvertently capturing pro-competitive conduct" by including in its drafting a set of mandatory factors to which the courts must have regard. These are the extent to which the company's conduct actually increases competition, by enhancing efficiency, innovation, product quality or price competitiveness.

In announcing its response to the Harper review early last year, the government accepted the Harper amendment in full, including the mandatory factors to safeguard competition. Now the government, at the last minute, is removing those safeguards from the bill that will go before the Senate.

Not surprisingly, the Greens and the Xenophons support the government's amendment, siding with it in a Senate inquiry. Labor, which describes itself as the party of competition, has long opposed an effects test and dissented from the Senate majority report.

Purportedly the removal of the mandatory factors is to avoid a "lawyers' picnic" when allegations of misuse of market power are taken to court. Yet the ACCC's draft guidelines issued last September set out the same mandatory factors. These ACCC guidelines, too, were a Harper recommendation.

In light of the government's removal of the mandatory factors from its bill, the ACCC has only two choices: remove them from its final guidelines or retain them. If the ACCC removes them the courts will be given no guidance in interpreting the new law. If it retains them the final guidelines will be inconsistent with the law and, to use the government's own argument, will create a "lawyers' picnic".

If the Treasurer's amended bill sails through the Senate, large businesses will be confronted with a decade or more of unguided test cases as the courts try to interpret what was in the minds of the legislators. The onus will be on them to prove they are not breaking the law.

Prime Minister Turnbull has signalled his intention to continue pursuing a company tax cut for large corporations when the Senate inevitably rejects the bill later this week for all companies with an annual turnover in excess of $10 million. The Prime Minister's stated reason is that he wants large businesses to invest. Yet his Treasurer's removal of the pro-competition safeguards from the government's competition bill sends exactly the opposite signal.

The BCA's reaction to the removal of the mandatory factors has been thermo-nuclear, its president Grant King describing it as "an astonishing amendment from a supposed free-market government".

The Treasurer should recant on his sop to protectionist lobby groups and National Party agitators and abandon the removal of the mandatory safeguards. At a minimum, he should subject his last-minute amendment to proper scrutiny by a Senate committee. On this he could be totally confident of Labor support.

If, however, the Treasurer presses ahead, the only reasonable conclusion to be drawn is that the government has done a deal with the minor parties to protect small businesses at the expense of consumers.