In the final parliamentary sitting days of 2018 the government has pledged to prioritise Prime Minister Morrison’s “big stick” bill to give the Treasurer the power to split up electricity retailers if they don’t offer electricity to small customers on terms satisfactory to them and to the government.
This bill constitutes the largest intervention by a government into a market of any ever contemplated under the Competition and Consumer Act 2010and its predecessor, the Trade Practices Act 1974. It would single out the electricity supply industry for forced divestiture, a policy that the ACCC does not support, but which inevitably would be extended to other sectors of the economy, such as petrol retailing, agriculture, supermarkets and banks.
How do we know it will be extended? Former deputy prime minister, Barnaby Joyce, and Nationals Senator, Barry O’Sullivan, have indicated that forced divestiture powers for electricity retailing would be a good first step on the way to a general divestiture power, with O’Sullivan stating they are not alone in the party room.
The Nationals want to extend their agrarian socialism into all the boardrooms of Australia. The Morrison government cannot pass the bill without Nationals’ support. Extension to the whole economy would be top of the agenda in any future Coalition agreement, and, based on this bill, a re-elected Morrison government would be all too ready to oblige.
To illustrate the breadth of the powers this bill would give an Australian Treasurer, a corporation engages in prohibited conduct if it offers to supply electricity to small customers and it fails to adjust the price of those offers “to reflect reductions in its underlying cost of procuring electricity.”
Similarly, a corporation engages in prohibited conduct if it makes offers of electricity contracts in a way that has “the effect or likely effect of limiting or restricting acceptance of those offers.” The bill gives the customer enormous power over the retailer: the price must be acceptable to the purchaser. Further, the Treasurer may order a corporation to make offers to enter into electricity contracts.
Consider a couple of scenarios. Despite rising wholesale costs, an electricity retailer might have refrained from increasing prices to small customers at the behest of a government or to protect its public image. If, as wholesale costs subsequently began to fall, the retailer sought to recoup some of its losses, it could be found to have broken the new law. That is, if an electricity retailer failed to adopt a policy of cost-plus pricing it could be in breach of the new law.
The Australian economy is based on markets, with prices set by the interaction of supply and demand. A government-regulated, cost-plus pricing system is a feature of a planned economy, such as Venezuela’s, not of a market economy.
As the Business Council of Australia argues in its submission objecting to the bill: “A Treasurer-ordered power … risks sending a signal to the world that investing in Australia comes with considerable risks.”Australia relies on foreign investment for its ongoing economic development. Yet foreign investors face the prospect of an Australian Treasurer obliging them to break up their assets if the government is dissatisfied with their pricing policies.
For the first time, the competition laws would be subject to political interference by the government of the day. A Treasurer, close to a general election, could threaten a retailer with forced divestiture and, indeed, begin the formal process of divestiture, for charging prices the government considers too high.
In the space of a few weeks the Morrison government has indicated it is willing to imperil a trade deal with Indonesia, cut Australia’s immigration intake and introduce price controls that would make Venezuela’s revolutionaries proud.
If ever the Liberals sought to present themselves as the party of free enterprise they have now forfeited that right. Australian businesses will be relying on Labor and sufficient cross benchers to curb the regulatory excesses of the Morrison government.