Venezuela, here we come!

On 22 November 2017, a nation’s government legislated price controls in response to voter dissatisfaction with the rising cost of essential items. On 23 October 2018, the government of another nation announced it would require electricity suppliers to reduce their prices by the end of the year in response to voter dissatisfaction with the rising cost of electricity. The first country was Venezuela; the second was Australia. 

Just as Venezuela’s Agreed Prices Act requires selected businesses to reduce their prices, so too does the Australian Government’s edict require selected businesses to reduce theirs. Prime Minister Morrison repeatedly told Parliament, swinging his arms as if holding a baseball bat, that if they failed to cut their prices he would hit electricity retailers with a “big stick”. 

Scott Morrison has become the Don Corleone of Australian politics. He has made retailers an offer they can’t refuse – cut your prices or else. The ‘or else’ isn’t a horse’s head in the beds of the electricity retailers’ CEOs but it is something for them to fear. Asked at the media conference what the “big stick” might be, Mr Morrison replied: “It's everything from enforceable undertaking through the courts through to divestment powers of their assets.”

Last month, Morrison said he was open to setting up a Royal Commission into the energy sector. Consider the politics of the “big stick” of an Energy Royal Commission. In 2013, the Liberals, in opposition, promised that, if elected, they would axe the Gillard Government’s horrific carbon tax and cut electricity prices by $350 per household. Now, after five years of government, the Liberals, having presided over ongoing electricity price rises, would be promising to establish a Royal Commission. It would be the most spectacular admission of failure, that the Liberals had not only broken their solemn promise to cut electricity prices but also remained clueless as to what to do next.

As to the “big stick” of forced divestiture, the Liberals would be legislating to the effect that if an industry refused to reduce its prices ahead of a federal election they would obtain and use powers to split up companies. If forced divestiture is good for the electricity industry surely it will be judged good enough for every other business. Former Deputy Prime Minister, Barnaby Joyce, has already called for the general application of forced divestiture provisions. 

Consider the enormity of this threat: do as we say or we will force you to sell some of your assets. This is not an abstract concern. Former Deputy Prime Minister and ongoing aspirant, Barnaby Joyce, has already called for forced divestiture to be extended to all industries through a general amendment to the Competition and Consumer Act 2010.

The Morrison Government will seek to jam Labor into supporting forced divestiture by putting up a bill that includes both a default price for electricity retailers and forced divestiture. Labor opposes forced divestiture, agreeing with reappointed chair of the Australian Competition and Consumer Commission, Rod Sims, that it is “a bridge too far.”  

Labor would likely move an amendment to split the bill, voting for the default price but against forced divestiture. But the Morrison Government would use its numbers to ram through the original bill, winning the vote in the House of Representatives.

The bill would then go to the Senate where a coalition of the Liberals, Nationals, Greens and several independents would pass it into law. Forced divestiture would then become a permanent feature of Australia’s competition laws; Labor would never have the numbers in the Senate to repeal it.

 If that isn’t worrying enough, contemplate the precedent set by a Liberal government requiring an industry to drop its prices ahead of a federal election. What’s next? Petrol prices, gas prices, grocery prices, bank interest rates. Maybe we can find a clue in Venezuela’s law, where agreed prices are mandatory and its National Executive reserves the right to incorporate any good or service into the price-control program. 

The Business Council of Australia’s muted response – relegating forced divesiture to the 10thparagraph of its mostly positive media release – suggests it has concluded only a few of its members would be affected. That would be a fatal misjudgement.

Imagine if Labor had announced mandating that businesses cut their prices ahead of elections. Shrieks of “socialists” would ring out of Australia’s boardrooms, and multi-million dollar advertising campaigns would be hastily organised. Business organisations would rightly use every available platform to argue that perceptions of sovereign risk would be elevated to the point where foreign investors judged Australia to be off limits. 

 Yet under Morrison’s Liberals it looks like it’s full steam ahead. Venezuela here we come!