Barnaby Joyce (Queensland, National Party) Share this | Link to this | Hansard source

I move:

That the Petroleum Retail Marketing Sites Amendment Regulations 2006 (No. 1), as contained in Select Legislative Instrument 2006 No. 73 and made under the Petroleum Retail Marketing Sites Act 1980, be disallowed.

I have moved this motion for the disallowance of the Petroleum Retail Marketing Sites Amendment Regulations 2006 (No. 1) because they completely disavow the principle set down by the Petroleum Retail Marketing Franchise Act 1980 and the Petroleum Retail Marketing Sites Act 1980—acts that still stand. Furthermore, the primary legislation is currently being considered, so these regulations bring in the intent of the legislation before its proper debate and passage. If you believe in small business operators, you have to allow a place for them to operate. It is no good saying that you must leave it up to the goodwill and trust of the independents’ competition, the major oil companies, to protect the commercial rights of independents, branded operators and franchisees.

These regulations, removing the restrictions on the number of sites the major oil companies can operate from, do not do anything to address the issue that Coles and Woolworths have, in their association with Caltex and Shell, circumvented the intent of the 1980 sites and franchise acts. In fact, the regulations exacerbate the pressure on the independents, branded operators and franchisees by allowing the major oil companies to actively campaign for the soft centre of the market currently protected by the sites and franchise acts. These regulations will allow total vertical integration, and this is never a reason to reduce prices in a marketplace. The fact that this market regulation has been removed is also a major impediment to getting biorenewable fuels onto the market. Independents are by far the most aggressive in this market. This town is a very good example of that. Of the four stations in Canberra that sell biorenewable fuel, E10, three of them are independents.

The change in the regulations will lead to a similar situation to what happened in the United Kingdom, where the independent fuel stations and other small operators were overtaken by the majors, leading to the loss of mum-and-dad operators, who had been beneficiaries of the profit generated from the fuel retailing trade. The closure of regional fuel stations, as happened in the UK, is another consequence of such regulations and one that should be a major concern for those who represent regional areas. The report by the All-Party Parliamentary Small Shops Group in the UK, High Street Britain: 2015, concluded that independent petrol stations were ‘very unlikely to survive’ in this market.

The argument will be put by some that none of the majors wishes to take over the independent, branded operator and franchisee share, but that is a counterintuitive argument to why they are busting their boilers to get these regulations through. The majors have offered no alternative plan as to how they will protect the independent, branded operator or franchisee sector of the market, which will be vulnerable to the regulatory change. We do not have the power under other mechanisms, such as section 46 of the Trade Practices Act, to protect them. If we let this regulatory instrument stand, we will be saying that the purity of a half-regulated market, which it is, is more important than participation by a wide cross-section of retailers. We will look rather hypocritical if we later endorse strict restrictions on who operates where and why in the cross-media ownerships laws.

I suppose it is who has the greater push in Canberra, and it is not the mum and dad operations when up against the might of motor oil companies. I understand that the conservative parties have a reason to say they promote the objectives of big business. I look forward to observing how this chamber will deal with the opportunity that has arisen to protect small family operations from the larger major oil companies. Maybe I am disconnected from this issue in Canberra, but that hardly explains those who have come to my office and lobbied absolutely vehemently to have these protections in place. These people are from organisations such as the NRMA, the Victorian Automobile Chamber of Commerce, the Motor Trades Association of Queensland, the Motor Trades Association of Australia, the Service Station Association, Renewable Fuels of Australia and myriad smaller organisations and operators.

So I am of the strong belief that I am representing key small business organisations that The Nationals in Queensland said we would represent at the election when we gave the promise that we would stand against the overcentralisation of the retail market. What this regulation does is bring about the oligopoly of retailing, which will be held by four oil majors in conjunction with Coles and Woolworths. They have an obligation to extract the best return for their shareholders, so relying on their good will in respect of the rights of independent, branded and franchisee sites to participate in the fuel market is against both their corporate responsibility and their optimum specific return on capital.

If the major oil companies get total control of a retail market, they have a corporate responsibility to exploit it so as to get the best return for their shareholders. If I were a shareholder of theirs I would expect absolutely nothing less. This was understood clearly in 1980 when the coalition government brought about the sites and franchise acts. It has always been the intent of the conservative side of politics to protect small business operators. The issue remains the same, but we are now changing. We are moving that which the coalition government set out to protect in 1980.

Since the repeal of this legislation allows the major oil companies the keys to complete control of the retail sector—and experience elsewhere, such as in the UK, says that this is what they will achieve—then naturally enough you are giving the oil majors the chance to put their margins up and maintain them there in the long term. In the current fuel price environment, I do not know whether that is what the public wants or will find palatable, that we are passing a piece of legislation that will give complete vertical integration and market control to the major oil companies, which are already exploiting their position in the market in such a way to extract a return that has brought about an up to 300 per cent increase in their parent company’s share price in the United States. I refer there to Chevron.

The 130,000 retail outlets represented by the Motor Trades Association of Australia have unanimously supported my position. That accounts for $113 billion in turnover annually. Ninety-five per cent of these outlets have less than five employees, which means they are the quintessential small business, non-unionised workforce and, as displayed by this regulatory change, they are not represented or supported by the major oil companies and those who have the major oil companies’ ear. A couple of nights ago on The 7.30 report was a Mr Jim Lamb, who represents only a handful of stations. He is the sole independent I have found who is on the side of this regulation change. I understand what he and all independents fear about the security of price and supply. They live by what the major oil companies supply them. Unfortunately, you do not have to worry about supply if you do not have a site to operate from.

Now, with your supplier also becoming your major competitor in the retail market, all I can say to you is good luck in the long term, especially if your site comes up for renewal. You have to remember that a lot of these sites are on three- by three- by three-year leases. At the end of these three-year leases, the oil companies have the ability to walk in and say: ‘We’re not renewing any more. It is not an obligation. The sites and franchise acts are finished. We’re going to take it over.’ They will know where the volume of fuel is going and they will know the margin they can extract. It will be an absolute fait accompli that they will go through their business plan to find those sites that are currently under lease. People say that there is a greater strengthening in the lease conditions, but there is only a strengthening in the lease conditions if they choose to renew your lease. If they do not renew your lease, they kick you out.

There is nothing in this that guarantees the price for those independents left in the market—which they are buying out—to allow them to compete with the major retailers of fuel. The major retailers of fuel will become the major oil companies. The major oil companies are not going to be selling a product to their competitors at a price that makes them uncompetitive. They will have a competitive advantage because they will be both the supplier and the retailer. There is nothing in this oil code that talks about any protections—no ombudsman or ACCC oversight—in how those oil companies will deal with their independent, branded and franchisee operations. Some will pose the position that the ACCC has an oversight; it has no oversight. The ACCC cannot go on a fishing expedition to find problems, nor can they demand information and, even if they do, they cannot come to a binding resolution.

The restriction on the number of sites that the major oil companies could operate from made it essential in the past to supply independent, branded and franchisee sites. Without these sites, their refineries could not operate at optimum capacity. Now, in the long term—not tomorrow, but in the long term—the major oil companies will be able to meet their optimum capacity without utilising independent, branded or franchisee sites. There is no intention to build new refineries, so there is a limited amount of fuel for the market, and you cannot supply fuel you do not have.

So when the major oil companies tell you that they will be supplying all their sites first and that if there is something left over you can have it at their price—their price they decide to sell to you, which will not be the price they are supplying themselves—they will be telling you the truth. There is nothing in this legislation that can stop that from happening. You may have an instance where they say, ‘There is no fuel for you.’ They will say, ‘If we had it, we would give it to you, but it’s all gone.’ They will be telling you the truth. You as an independent, branded or franchisee site will have a major supply crisis because you will not be able to obtain your fuel at a price that will keep you in the market.

Furthermore, certain independent branded or franchisee sites will be an inconvenience, so they will not attain the discounts on terminal gate price that the company owned sites can avail themselves of. This legislation talks about terminal gate price. Terminal gate price is very handy, but very few fuel stations buy it at terminal gate price. Everybody receives it at a discount and a variant amount of discount to the terminal gate price, and the discounts are not disclosed. If I want to put you out of business, I will sell it to you at the terminal gate price, because you will probably be the only one in the market buying it at that price. It will become inconvenient to supply these sites out in regional areas and, when they do supply them, they will supply them at a price that will mean it is unviable for them to stay open. They will not get the travelling trade. When they do not get the travelling trade and therefore close down, that becomes yet another service that is removed from small regional towns to add to the banks, railway stations and post offices that have been removed. In these small regional towns, you will get nothing for your house or very little for your house, so you cannot move unless you want to walk away with little or nothing. Now you have a real impediment on your freedom of movement if you choose to stay or have to stay, as opposed to the impediments that are currently on you in leaving.

What I am saying would be grandstanding and emotive if it was not for the findings of the All-Party Parliamentary Small Shops Group inquiry report entitled High street Britain: 2015 that was carried out in the UK. I would like to comment on some of this inquiry’s findings. Amongst its many observations on the disappearance of the traditional local small shops and independent convenience stores, it also reported on the use of discounts by petrol forecourts and argued that this could be considered to be predatory pricing. The report stated that it believed that the big four, which would be the same big four as here, sell fuel below cost until local competition can no longer sustain the loss margins. This is followed by a sharp rise in price at the multiple retailers’ forecourts. ‘Forecourt’ is their word for petrol station.

This is exactly what I predict will happen in Australia. We are talking about the same companies, the same environment. In fact, it will be exacerbated in Australia because of the distances. The Association of Convenience Stores contends that even superficial research into local markets illustrates that price flexing by a major retailer in towns in close proximity to each other exists. Between 1991 and 2004 in the UK, 8,380 forecourts, or service stations, have gone out of business, with hypermarkets—that is, major supermarkets—now selling over 30 per cent of the fuel sold in the UK despite only operating from 10 per cent of the sites. In Australia, the major supermarkets sell well in excess of 50 per cent of the fuel, so our position is worse than that of the UK’s before we exacerbate it further by this regulatory change.

The report stated that the cessation of trading by small retailers close to national multiples seems inevitable. An example of this is found in Cupar, a town in Scotland which, prior to Tesco—a large multiple retailer—had four petrol stations. Now they only have one. We already have issues in regional areas of Queensland relating to the closure or intended closure of fuel retailing outlets. That is a huge inconvenience for the people who live in those towns, because it is a fundamental of life. How are you going to fuel your car when there is not a petrol station in your town? To people who say that is not going to happen, where is the protection in this regulation? There is no protection. There is no intention to give protection, so we have to accept the consequences that are going to flow from this. Every time you go to a regional area and the people say: ‘We had a town. We had a fuel station. Now we just have houses and a pub,’—the pub will probably survive—that is a consequence of this change that we are about to bring about. It is a consequence for which the conservative government in 1980 realised they had to put in a protection mechanism against.

The evidence in this report is a recent and concrete example of the impact of small business operators being pushed out of the market, which in turn affects competition and, as a result in the case of the UK, led to a rise in the price of fuel for consumers. Under the reform processes that are being put forward, starting with the changes in these regulations, Australia runs the very real risk of mirroring what has occurred in the UK. The short-term benefits shall last till independents disappear. Then the long-term malady will be incurable. You will not be able to get independents back into the market once they are gone, nor will there be the political will to do so. The capacity that we need now to get biorenewable fuels into the market will be gone. Why would the major oil companies want to sell a competing product in ethanol? What would possess them to sell their competing product? What would possess them to supply their competition with fuel?

Whether you are considering the future of small businesses—and I made a clear statement in Queensland that I was going to Canberra to represent the interests of small businesses—or the future of services in small towns, I ask this chamber to strongly consider the implications of this regulation in the way you are about to vote. The consequences of this will be that we will have exacerbated the problems that are currently being experienced in regional areas and, in the long term, we will be leading to an oligopoly in how fuel is marketed. If we had changes to section 46 or something so that we could go out there with some form of protection, we could do it, but we do not have those section 46 changes. We have no mechanism for protecting them, so I will not support this regulatory change.

Nick Minchin (SA, Liberal Party, Minister for Finance and Administration) Share this | Link to this | Hansard source

With great respect to my friend and coalition colleague Senator Joyce, I regret to inform him that the government opposes his motion for disallowance, while respecting his right to move this motion—one of the great things about our side of politics. On 30 March this year, the minister whom I represent in this chamber, Ian Macfarlane, the Minister for Industry, Tourism and Resources, announced in his second reading of the Petroleum Retail Legislation Repeal Bill 2006 that he would be amending the Petroleum Marketing Retail Sites Regulations 1981, consistent with the government’s downstream petroleum reform package. That package provides a uniform regulatory environment for industry participants through the introduction of the oil code, which has been worked up in full consultation with the industry, under section 51AE of the Trade Practices Act 1974 and, at the same time, repealing the old Petroleum Retail Marketing Franchise Act and the sites act. I remind the Senate that this package has been government policy for quite some years. In fact, I spent three years as industry minister seeking to have this package adopted—regrettably, to no avail—and it is well beyond time that it was implemented. I think it is an essential reform.

The aim of the oil code that we have developed is to provide industry participants with a national approach to terminal gate pricing, fairer contractual arrangements and access to a downstream petroleum dispute resolution scheme. Development of the code, as I said before, does follow very extensive consultation with industry, industry associations, consumer groups, state and territory agencies and relevant Australian government agencies.

Senator Joyce’s disallowance motion seeks remove the oil majors as prescribed corporations and suspends the oil majors reporting and compliance obligations under the existing sites act. The amendment to the regulations prevents market uncertainty and breaches of the act, while the repeal bill is under the consideration of the parliament—in other words, this amendment is an essential mechanism to ensuring proper consideration of this repeal bill without undue intervention, interference or uncertainty for the industry itself. Under the existing legislative framework, the oil majors may temporarily operate a retail site for a period of up to eight months while they determine the best business structure for the site. Under the existing sites act, to temporarily operate a site the franchisor must have a good faith intention to either dispose of or franchise a site at the end of this temporary eight-month operation period.

The introduction of the government’s bill to repeal the sites and franchise acts has the effect of reducing the ability of the oil majors to meet that intent in good faith. It actually prevents them from making use of these temporary operation provisions because they could not, knowing our repeal bill is there, meet that good faith requirement. Had the government not made an amendment to these regulations, for which there is a motion seeking its disallowance, the oil majors would have had to re-enter nine-year franchise agreements, close retail sites or enter into arrangements with third parties, even if a different business structure would clearly be more appropriate and knowing, of course, the government’s intent to repeal the whole structure.

We are committed, as I said before, to repealing the sites and franchise acts and to the introduction of the oil code, and I think we have gone now to at least three elections with that as our clear policy. The regulation that has been promulgated is entirely consistent with this aim of the government to introduce a more effective regulatory regime, to allow all industry participants to respond and adapt to changes in the retail petroleum marketing industry without distorting or reducing levels of competition. It is our strong view that the proposed reforms to Australia’s petrol retail sector will increase competition, not reduce it. I remind senators that many in this place and in the other place have publicly supported the repeal of the sites act, including, I understand, the Leader of the Opposition.

The sites and franchise acts are consistently acknowledged by industry and, indeed, the opposition as being outdated and redundant. Under the current restrictive regime, approximately one-third of the nation’s service stations have closed. The ample supply of petrol that fuelled the rise of the independents no longer exists. Greater demand for fuel in the Asian region and cleaner Australian fuel standards have had the effect of changing the market quite significantly. Shell and Caltex have divested much of their direct retailing to Coles and Woolworths. The reality under the existing arrangements with the sites and franchise acts is that Coles and Woolworths now have around 50 per cent of the petrol retail market. Really the sites act has effectively been rendered redundant. The government, quite clearly and simply, want to achieve a level playing field for all petrol retailers to ensure that we do have a competitive market. We are very committed to having a competitive market. That is what we believe our package is all about given the current realities of petrol retailing.

In terms of the independent sector, the government’s proposed oil code, which, as I say, has taken an enormous amount of time, effort and consultation to develop, will strengthen the position of independent retailers through better representation and access to a fairer dispute resolution process. It will be backed by changes to the Trade Practices Act. Maximum competition remains the greatest guarantee of the lowest priced petrol and that means ensuring that oil companies and the independent sector can compete on level terms with the supermarket chains.

In relation to Senator Joyce’s proposed disallowance, existing franchisees are unaffected by the change coming about as a result of the regulation that we have introduced. Current franchise agreements continue to be covered by the franchise act, including all terms, conditions and renewals. If franchise agreements have ended and the parties negotiate and enter into new franchise agreements, they will need to comply with the existing franchise act. For other market participants such as commission agents, their agreements will be covered by the oil code once it comes into effect, if indeed this parliament so deems, including preservation of tenure for agreements entered into before the commencement of the oil code. Disallowance of this regulation in our view will serve no purpose. It will not result in any changes to the government’s downstream petroleum reform package, which we remain committed to, and it will only cause further uncertainty for the oil majors and their franchisees, who are small businesses in many cases. It will reimpose compliance costs on the oil majors that may well end up being reflected at the pump.

Should the disallowance motion itself be successful, it is our estimation that BP will be the major most immediately affected. Rather than signing nine-year franchise agreements, which may prove to be an uneconomic business model, it may well have to choose to close sites or enter into third-party arrangements outside of the constraints of the sites act. BP does want to run more of the sites it already owns, yet it is restricted by the current law to operating just 87 petrol stations around Australia. It is our view that that restriction does not augur well for BP’s clear, articulated and welcome strategy to offer consumers greater access to biofuels. While we understand and respect Senator Joyce’s very strong commitment to small business in this country, we do not think disallowance will do anything to assist small business operators in this industry. The government’s position on balance is very much, regrettably, in the circumstances, that we oppose the disallowance motion moved by Senator Joyce.

Andrew Murray (WA, Australian Democrats) Share this | Link to this | Hansard source

Senator Joyce has moved a motion to disallow the Petroleum Retail Marketing Sites Amendment Regulations 2006 (No. 1) made under the Petroleum Retail Marketing Sites Act 1980. This motion is directly related to the government’s proposal to repeal the Petroleum Retail Marketing Franchise Act 1980 and Petroleum Retail Marketing Sites Act 1980 and replace them with a mandatory oil code under the Trade Practices Act.

In our view, there are two issues before us. One is the question of whether these regulations effectively put the cart before the horse, in that they have been put into law prior to the passage of the bills which would make them valid and reasonable. The second issue is whether this is an incomplete package, in that it is not accompanied by appropriate underpinnings, an appropriate safety net and appropriate protections for small businesses, who will be more disadvantaged than they are at present.

In that regard, I note the remarks made by the opposition revenue spokesperson, Mr Fitzgibbon, as reported by AAP on Wednesday, 14 June 2006:

The Regulation has the effect of repealing the Sites Act before the Parliament considers the merits of the repeal bill. This is an unacceptable abuse of power and an attack on parliamentary democracy.

The government is proposing to repeal the sites act, thereby allowing the oil majors to directly operate all retail sites owned by them. As an interim measure, the government has sought to remove the oil majors from the operation of the sites act through these regulations. By seeking to relieve the oil majors of their obligations under the sites act, the government is pre-empting the parliamentary debate regarding whether or not the sites act itself should be repealed and whether the repeal proposal is complete and adequate in its form. These regulations should therefore be opposed as they are contrary to the parliamentary intention behind the existing law and they represent a blatant attempt to pre-empt parliament’s decision as to whether or not to repeal the sites act, as proposed by the government.

The reason the government are taking this route is that it is an extraparliamentary way of getting around the parliament in a circumstance where they fear that those coalition members who feel strongly about small business might torpedo their proposed legislation. That is not the way to conduct a parliamentary democracy. Coalition members do not seek to oppose or irritate the government on a whim; they seek to do so because they recognise that they have a concern with respect to their constituency. It is a valid concern, and they have the courage therefore to address that concern. Whether I or anyone else happen to agree fully or not with the particular issue at hand, it is a mistake for Liberal and National members, both frontbench and backbench, to allow this kind of practice or procedure to be accepted or entrenched. The proper way for these things to be resolved is, firstly, for them to be raised within the party room of the parties concerned and, secondly, for them to be brought before the parliament for final resolution.

I and many others object to this regulation coming up prior to the enabling legislation, because it is a profound, regrettable, undemocratic and nasty abuse of process. It is nasty because it will not recognise the validity of opinions held very strongly by literally thousands of small business owners and employees and by those parliamentarians who seek to represent them. My party and I strongly object to this on the basis of an abuse of process.

The second issue is whether there is sufficient underpinning for small business in this package. In his remarks, Senator Joyce specifically referred to the section 46 amendments, which small business at large, many academics, many professionals, many businesspeople and many parliamentarians have been urging on the Treasurer and the government. There is a remarkable thing about this. The Senate Economics References Committee in March 2004 conducted an inquiry into the effectiveness of the Trade Practices Act 1974 in protecting small business. That inquiry was chaired by a senator who is present in the chamber today, Senator Stephens, who I thought did a very creditable job in conducting that inquiry and was very ably assisted by all the members of the committee, of whom I numbered one.

That committee produced 17 recommendations. Although there was a minority report which dissented from a number of the recommendations in the majority report—and which was principally authored by someone who deserves to be regarded as expert in this field; namely, Senator George Brandis from Queensland—the Liberal Party members of that committee supported a series of recommendations in the majority report. The government, subsequently, accepted those recommendations in the Australian government response to the Senate inquiry.

That response indicates that the government accept that there are a number of areas that deserve to be amended to assist small business in competing more fairly and more ably in the marketplace. So the recommendations were considered by a Senate committee, a number of them were accepted by the government experts on that committee and they were then accepted by the government. That was two years ago, and they are still not part of a package available to the parliament to underpin a change in law which manifestly will enable big business operators to compete in this industry in a more effective manner but does not provide any assistance at all for small competitors, small individuals and small business people who are faced with this changed environment.

It should be noted—and the minister mentioned it briefly—that major corporations like BP, Caltex and others support those proposed bills and they oppose this disallowance motion. They have a legitimate case to make. In contrast, the Motor Trades Association and small business owners oppose the bill in its current form and support the disallowance motion. So you have a clear cleavage in the market. My question to the government is: instead of saying you will fall only on the side of the one party, which is all you are doing, and instead of being the big business lapdogs that you appear to be, why don’t you match your proposals with those which you have already accepted in the government response and provide some leverage for small business in these circumstances? That is the problem with what you are putting forward. Both the reality and the perception are that this is biased, one-sided and just not fair.

The central issue is not whether the franchise and sites acts should remain but, rather, that the post-repeal environment allows sufficient opportunity for small business and independent fuel operators to remain competitive and not be driven out by the oil majors and the supermarket chains. That requires: firstly, the strongest possible oil code, to ensure that small business and independent fuel operators have continued access to suppliers of fuel products—at prices and under terms and conditions that enable them to compete in the market; and, secondly, that an effective Trade Practices Act ensures that small business and independent fuel operators cannot be driven out by anticompetitive practices by the oil majors or supermarkets.

It is not my view that it is anticompetitive that those practices are possible. It is the view of a Senate committee which has majority support for all of its recommendations and unanimous support for a number of its recommendations, which the government have accepted. Those potential anticompetitive practices should be addressed. For an effective Trade Practices Act, one of the most important things a government could do would be to implement the recommendations from the Senate inquiry. In my view it would be preferable to implement all 17 of them, but at least they should implement those that they have accepted. Two years later, they will not do it. Why won’t they do it? It is not because they do not agree with them, but because big business pressure is telling them not to. That is just not acceptable for a government which claim to govern for all Australians and for all businesses.

Those recommendations would assist the Australian Competition and Consumer Commission in more effectively dealing with potential abuses of market power and unconscionable conduct by the oil majors and the supermarkets. Under the Petroleum Retail Marketing Sites Act 1980, oil majors have been restricted to operating only five per cent of service stations. The original policy objective was to prevent the vertical integration of oil companies all the way through to the final consumer. By restricting the number of service stations that the oil majors operated, smaller business operators were to be given the opportunity to participate in the retail fuel market. That would have led to greater price competition to the benefit of consumers as the oil majors could not—because of section 48 of the Trade Practices Act, which prohibits resale price maintenance—directly set the retail price at sites operated by these small businesses.

The Democrats recognise that the market has moved on. We understand that. We understand that it is necessary to reform and change the legislation governing this industry. So we are in a situation which, as I read it, is exactly that of the Labor Party opposition: if the government showed some good faith and moved towards recommendations and the simultaneous implementation of changes to the Trade Practices Act, we could consider this legislation favourably. The ALP minority report of the recent Senate Economics Legislation Committee inquiry into the Petroleum Retail Legislation Repeal Bill 2006 stated:

Ideally, the Government should commit to immediately legislating the following recommendations of the Senate Committee in relation to s46 of the TPA:

I note that Mr Fitzgibbon listed those recommendations in his earlier remarks.

The issue is that you cannot have one set of changes which are not simultaneous, contiguous or coincident with changes which would assist small business in general through general competitions law. For decades, the Australian Democrats have argued that a strong small business sector is essential to the economic and social health of Australia—that small business has a value of itself. That is a very important statement. We do not see small business just as an economic mechanism. We see it as a fundamental part of our social fabric. That needs to be understood by the coalition. You cannot regard these matters purely in economic rationalist terms or purely under economic criteria. You have to recognise that there is a value to this country in keeping small business in business.

I do not want to see a service station market reduced further with respect to its independent participation than it is at present. If my memory is correct, we have come down from something like 30-odd thousand independent service station operators to around 8,000 now. That is a market rationalisation of huge scope and nature. In many respects, it is inevitable. It is the nature of the modern world that there is an increasing concentration of market power in fewer hands. It is the nature of our changing world environment. But it should not mean the total destruction of the small competitors, and, if we can do anything to retain small business as a viable, effective and meaningful contributor to our economic and social health, we should do so. That is why I consistently say that small business has a value of itself.

Our views on the Petroleum Retail Legislation Repeal Bill are necessarily coloured by that perspective. We, the Democrats, strongly support the workings of a free and fair market, as evidenced by our work on corporations, trade practices and tax law. But we have long been concerned that a weak Trade Practices Act does not deliver sufficiently fair competition for small business with sufficiently adequate protections from predatory pricing and the abuse of market power. We need to understand in this country that we have a weak Trade Practices Act compared with international trends in legislation.

In that respect we set great store on recommendations in the majority report, which we support, of the Senate Economics References Committee of March 2004, titled The effectiveness of the Trade Practices Act 1974 in protecting small business. If those 17 recommendations were implemented—that cover the misuse of market power, unconscionable conduct, collective bargaining, creeping acquisitions, divestiture and the power and resources of the Australian Competition and Consumer Commission—then free and fair competition would be greatly strengthened in Australia. Further, there would then be less of a case—and that is an important point—for industry specific regulation in any industry if the general law was so strengthened.

The Democrats opposed the earlier version of this bill, arguing that stronger trade practices powers were first required to address the abuse of market power and to introduce the threat of divestiture on over-mighty corporations. We said then that Trade Practices Act reform was a precondition to considering whether this industry regulation could be lifted or modified. That is still our position, but at least offer us those things that the government have said they would accept with respect to changes to the Trade Practices Act following that Senate committee in 2004—two years ago. This is a government that can produce terror legislation in 24 hours but takes over two years to even drag themselves into the parliament to discuss Trade Practices Act reform. What is the matter with them? Does it not matter to them that the small business community feels strongly about this?

I have argued again and again—and I will repeat some of my remarks that I have made before—that the thing that is missing in our laws is the flip side of the merger and acquisition power. Workplace, tax, corporations, finance and trade practices laws are the main laws affecting the functioning of the market and the regulation of the behaviour of corporations. In matters of competition and consumer interest, all over the world the law restrains great commercial power because of the known abuse of power that often accompanies it. When it comes to the size and behaviour of corporations, the Trade Practices Act 1974 is Australia’s prime protective device, yet the act is weaker and more deficient in its protective capabilities in comparison with legislation in countries like the United Kingdom and the United States.

I have said before that big business roars approval at the dynamism of the American market but fiercely condemns a major contributor to that dynamism—and that is the effects of antitrust or divestiture laws. We need those regulatory tools in Australia. Balanced divestiture laws are the corollary of balanced merger laws. We do not have effective divestiture laws, and it is to me a strange and illogical policy that can prevent mergers to maintain effective competition but cannot require divesture also to maintain effective competition.

As in Australia, many markets are experiencing oligopolisation, which is a concentration of power in the hands of a small number of competitors, this is partly a natural result of economies of scale—the big get bigger and as they do they develop the ability to operate more cheaply and efficiently. Over time the smaller players are forced out of the market. That is the way of the market and it is valuable while it promotes efficiency, innovation and competition—but only up to a point. Eventually the destruction of competitors results in the destruction of competition, or the predatory intimidation of competitors reduces effective competition. Where that has occurred or will occur the state must intervene to save the market from eating itself.

By its very nature, power to order divestiture should be regarded as largely a reserve power as international precedents indicate it would be seldom employed. It should be used rarely and used responsibly. Its great virtue is as a cautionary power making oligopolies careful of abusing their market power. It will be used only when necessary to maintain or restore competition.

I am repeating remarks I have made again and again simply because they are remarks that need to be made again and again—until the government of the day eventually gets the point that its Trade Practices Act must be strengthened so that the economic health of Australia is assured and recognised in an appropriate manner. The Australian Democrats do accept that there is a need to update the regulation governing the petroleum sector but we are not content that the package of measures that accompanies it has yet been put before the parliament.

John Watson (Tasmania, Liberal Party) Share this | Link to this | Hansard source

As there is only slightly over a minute to go I will not call the next speaker, Senator Stephens, at her request so she can have a complete speech after the Senate resumes. The Senate will pause for two minutes. Thank you.

Debate interrupted.