Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

I am pleased this morning to rise to speak on the Primary Industries Levies and Charges Collection Amendment Bill 2016. Just before I commence, I note that this is the last parliamentary sitting day before the budget. With the election due at any time, this could be the last opportunity that I get to speak during this parliament. I would just like to say that to rise in this parliament and speak is one of the greatest opportunities that any Australian citizen can have. In this parliament we should all take that opportunity and understand how valuable it is that we can be here and add our voice to debates on matters of public policy.

Early in this debate, the member for Hunter made several comments about section 46 as it applies to primary industries. I wish to respond to the points that he raised in this debate. First, when we talk about section 46 in our competition laws, the first question we should ask is: why do we even have competition rules? We say we believe in free market competition because history shows that free market capitalism has been the greatest tool of wealth creation known to mankind. It has been the most effective weapon ever to lift millions, if not billions, of people out of poverty. We have also seen that it is the best solution that we have for our environment. One only has to look at the environmental mess that was created in the centrally planned economies of the Eastern Bloc, China and other socialist states that became the world's worst polluters. They were stuck with outdated technologies. They had no sufficient wealth creation to generate the money for the clean-ups. If we had the entire world going down that track, we would be facing an environmental apocalypse. Technological solutions are improving our environment and will continue to improve our environment, and they can only be achieved through the workings of the free market.

When we talk about the free market, it is perhaps paradoxical that, in order for that free market to be achieved, we need some rules or regulations for the free market to operate. If you do not have those rules to govern competition, you go back to feudalism. It is a paradoxical proposition that those who believe in free markets and what they achieve should be the strongest believers in competition regulation. If we look through the history of competition laws, or antitrust laws as they call them in the states, I would suggest that they were designed to do three things. We sometimes say that our competition laws should be there for the benefit of the consumer. I say that is putting the cart before the horse. The benefits to the consumer come at the end.

I go to the three most important things regarding why we need competition laws. The first reason is to provide equality of opportunity to the person who decides they want to run their own show, want to have a go by themselves and do not want to be an employee of a large corporation. They want to try their own luck with their own ideas. That is the most important principle that has underwritten the wealth creation in the world over the last several hundred years. The person who said that best was Theodore Roosevelt over 100 years ago, in 1912. I would like to quote a few lines from a speech that it gave about the importance of providing opportunity. He said:

The important thing is this: that, under such government recognition as we may give to that which is beneficent and wholesome in large business organizations, we shall be most vigilant never to allow them to crystallize into a condition which shall make private initiative difficult.

It is of the utmost importance that in the future we shall keep the broad path of opportunity just as open and easy for our children as it was for our fathers during the period which has been the glory of America’s industrial history—that it shall be not only possible but easy for an ambitious man, whose character has so impressed itself upon his neighbors that they are willing to give him capital and credit, to start in business for himself, and, if his superior efficiency deserves it, to triumph over the biggest organization that may happen to exist in his particular field.

That is why we need effective competition laws: to provide equality of opportunity.

The second reason is to provide protection from predatory practices. Someone can risk their own capital, go into business for themselves, set up that business and know that they can compete without the larger incumbent players in the market using a predatory pricing scheme or geographic pricing to drive them out of the market. The third reason is to prevent overly concentrated markets. We sometimes make the mistake when we look at competition policy of saying that it is okay, you only need two or three competitors in a market for there to be competition. That may well work for the consumer, but it does not work back up the supply chain. This was noted back in 1953. I think this quote sums it up the best. This is from the National Farmers Union in the USA in 1953 during an inquiry into the Robinson-Patman Act, their Anti-Price Discrimination Act. They said:

The Robinson-Patman act has been referred to as the Magna Carta of small business. We consider it the Magna Carta of agriculture also. The farmer must have competition in the market place. If he is to deal with giant monopolies either in buying or selling, he perforce becomes an economic slave.

By coincidence, there is an example of the dangers and the problems of overly concentrated markets in the supply chain in today's papers. In The Sydney Morning Herald today there is an article about Woolworths stretching its payments to its suppliers from 30 days out to 60 days. This is what happens when the market is overly concentrated. When they are forced by such a demand, a supplier must have the ability to say, 'Get stuffed.' It is fundamental to the workings of the free market that in commercial negotiations between two parties either party has the ability to say, 'Get stuffed.' But when the market becomes overly concentrated and they are faced with Woolworths wanting to negotiate to push their payment terms from 30 days out to 60 days, what opportunity are any of these suppliers going to have to say, 'Get stuffed'? None. They just simply have to cop it. Some of the suppliers today talked about Woolworths' payment system, saying:

"Their payment system is broken and deliberately so. Payments come slowly and in dribs and drabs," said one supplier, who supplies products to all Woolworths divisions, including home improvement and BIG W.

"One of my terms is 28 days and I have invoices that are 90 and 120 days old," the supplier said. "They're way outside payment terms."

Another supplier said: "Invoices aren't being paid on time. You get a contract with settlement terms and they never meet the settlement terms. In any one week we'd be chasing 30 invoices at Masters and Woolworths. Sometimes they haven't paid at least 20 per cent of the invoices."

Although pushing out their payment terms might well make Woolworths more efficient, it simply transfers the costs back onto those suppliers, so the entire supply chain becomes less efficient, and the people that are damaged are the consumers.

Given the history of the three reasons why we need competition laws, we should go through Australia's response to them. The first is to provide opportunity. You need laws to prevent anticompetitive price discrimination because, where a firm dominates a large share of the market, it can put pressure on the suppliers to give it preferential terms way beyond any economies of scale. This gives it a competitive advantage and puts its smaller competitors at a competitive disadvantage. That is why the USA have the Robinson-Patman Act, an act that goes back to 1936. That is why they have the Interstate Commerce Act, which goes back to 1887. But from day one we have not had an effective law against anticompetitive price discrimination in this country, and we still do not have one today.

Secondly, there is the issue of predatory conduct, geographic price discrimination and predatory pricing. Again, our laws have failed. You only have to read Justice McHugh in the Boral case back in the 1990s, over 15 years ago. He noted the failure of our laws to prohibit predatory pricing. He said:

Conduct that is predatory in economic terms and anti-competitive may not be captured by s 46 simply because the predator does not have substantial market power when it sets out on its course to deter or injure competitors …

As written, our law only applies to companies with a substantial degree of market power, and in predatory pricing schemes, by definition, when you set out on that scheme you cannot have a substantial degree of market power if you have a small, pesky competitor that you want to wipe out. Justice McHugh said:

Section 46 is ill drawn to deal with claims of predatory pricing under these conditions.

That is the current state of our laws. Further, when it comes to acting when the market is overly concentrated, in the USA they have divestiture powers that allow for the break-up of companies that become too large and dominate a market too much. It has been argued here in Australia that we should not have the same laws as the home of free-market capitalism because it is unfair to the shareholders if a divestiture is ordered. But economic history tells us the exact opposite. If we look at when the US courts have used those divestiture powers, the winners have been the shareholders, because it has been found that the sum of the parts is worth more than the whole. That is exactly what happened in the USA when Standard Oil was famously broken up into over 30 separate small companies. If you were a shareholder in Standard Oil, for every one share that you had, you were given one share in each of those 36 other companies. Within one year of that break-up audit, the value of those individual shares in each of the new companies was worth more than double that of the original shares, so that is not something that shareholders should be worried about.

That is the state that our competition laws have been in for almost a century, so it has been pleasing that the Harper review identified that our competition laws are not working and are broken and that changes need to be made. We would hope that the Labor Party would discuss and look at supporting some of these changes, but unfortunately we know the Labor Party oppose them, because they like centralised control. They like the idea of a few large companies dominating each sector because it is simply easier for them to unionise those employees. We have seen that with their disgraceful decisions and actions on the Road Safety Remuneration Tribunal. What they have done is put independent operators at a competitive disadvantage to drive them out of business, to drive them into unions, under the guise of safety. This is a disgrace. (Time expired)

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