1.1
The Australian retail sector was once relatively protected from overseas competition. This is no longer the case; Australian retailers now compete with businesses from around the world.
1.2
Recently, competition has begun to come from internet retailers based overseas. Currently, online retail accounts for just 6.4 per cent of Australian retail spending but, unlike traditional retail, online spending is growing rapidly.
1.3
To date, domestic retailers have accounted for the majority of online retail spending. Nonetheless, competition from overseas retailers is increasing and likely to intensify further due to the entrance of businesses such as Amazon into the Australian market.
1.4
Online competition is often facilitated through digital platforms, such as eBay and Alibaba, which act as intermediaries between customers and businesses. In addition, the influence of digital platforms extends beyond the retail sector, for example Expedia, Booking.com, and Airbnb all have a significant impact on the accommodation market.
1.5
While digital platforms provide an avenue for overseas businesses to sell directly to Australian consumers they also, crucially, provide an opportunity for Australian businesses to sell to overseas consumers.
1.6
As many as 90 per cent of the Australian small businesses on eBay are using the site to export their products. The opportunity to sell to a global market of consumers has enabled the success of many small Australian businesses that would be unviable if restricted to a purely local market.
1.7
The disruption that comes when a new digitally enabled competitor enters the market can be swift and its effects transformative. Nevertheless, these disruptions are also opportunities, and how well Australian businesses can take advantage of these opportunities will have a substantial influence on the future success of the Australian economy. As Data61, the CSIRO’s digital innovation group, stated:
…digital disruption is ubiquitous and it’s just beginning [it is] set to transform practically every industry and every organisation, small to large, as well as impact the careers of the vast majority of Australian workers … the efficiency with which a national economy transitions to digital is core to its ability to generate jobs and wealth for its citizens.
Conduct of the Inquiry
1.8
On 19 October 2017, the then Assistant Minister for Industry, Innovation and Science, The Hon Craig Laundy MP, referred the Inquiry into the Impacts on Local Businesses in Australia from Global Internet-based Competition (the Inquiry) to the Standing Committee on Industry, Innovation, Science and Resources. The Terms of Reference are available on page v of this report.
1.9
The Inquiry considered how Australian businesses have responded to growing competition from global online companies. The Inquiry also considered how Australian businesses can be assisted to take advantage of the opportunities presented by the digital economy. The focus of the Inquiry was primarily on small businesses and retail businesses. More specifically the Committee examined:
Current and future technologies which may assist Australian businesses to compete effectively in a digital economy.
The current, and expected future, impacts of increased internet competition on Australian businesses.
The uptake of digital technologies by Australian business and barriers to greater uptake of these technologies by Australian businesses.
The opportunities that online digital platforms create for Australian small businesses.
The effects of increased internet competition on employment levels and conditions in Australia.
The existing levels of digital literacy and skills in the Australian workforce and future skills requirements.
The regulation of internet-based businesses in Australia.
Taxation issues and the compliance of internet based businesses with Australia’s taxation and regulatory obligations.
The power of digital platforms and whether this impacts on fair trading conditions in Australia.
Australia’s innovation system and how successfully it assists Australian businesses to compete in the digital economy.
1.10
The Inquiry received 16 submissions and held four public hearings between December 2017 and February 2018 in Canberra. The witnesses at the public hearings included groups that had made submissions to the Inquiry and groups that had made submissions to the Department of Industry Innovation and Science’s consultation on the Digital Economy Strategy. Witnesses included government agencies, industry associations, research institutes, and academics.
1.11
A list of submissions received is at Appendix A. The names of witnesses and a list of hearings are at Appendix B.
Previous Reports and Research Papers on the Digital Economy
Access Economics Report on the Sharing Economy (2015)
1.12
The Australian Competition and Consumer Commission (ACCC) commissioned Deloitte Access Economics to conduct research into the regulatory impact of the sharing economy. The paper, published in October 2015 and entitled ‘The Sharing Economy and the Competition and Consumer Act’ analysed existing competition and consumer laws and determined that:
The key legislative issue relating to competition and the sharing economy is not related to the [Competition and Consumer Act] but rather to industry-specific regulation that currently restricts competition and protects incumbent operators in the traditional economy. In some cases, sharing economy businesses may be operating in breach of these regulations.
1.13
Nevertheless, Deloitte Access Economics (Deloitte) suggested that regulation of the sharing economy ‘should only be promulgated where a clear problem can be identified’.
1.14
However, Deloitte found that there may be a role for government in ensuring that appropriate standards for accessibility and transparency are met by sharing platforms, as they are by traditional businesses.
Harper Review of Competition Policy (2015)
1.15
In December 2013, the then Prime Minister and then Minister for Small Business announced a review of competition policy. The review was led by Professor Ian Harper and released its findings on 31 March 2015.
1.16
One of the review’s recommendations was to make changes to Section 46 of the Competition and Consumer Act (2010) which deals with misuse of market power. These changes would insert into the legislation a test to determine whether corporations with significant market power were engaging in actions that had the result of substantially lessening competition.
1.17
The government issued its response to the review on 24 November 2015. The government stated that it would consult further on this issue. In December 2016, following this consultation process, the Government introduced the Competition and Consumer Amendment (Misuse of Market Power) Bill 2017. The bill received royal assent on 23 August 2017.
Productivity Commission Report on Digital Disruption (2016)
1.18
In June 2016, the Productivity Commission (PC) released a research paper entitled Digital Disruption: What do governments need to do? The paper discussed ‘the potential impacts and challenges of digital technology for markets and competition, workers and society, and the way governments operate’.
1.19
The PC’s findings included that: governments may need to address issues relating to the ‘gig’ economy and outsourcing; the sharing economy could lead to ‘structural adjustment issues in industries that have traditionally faced little competition’; new regulatory tools many be needed to address the market power of digital firms; governments should adopt a ‘wait and see’ approach to new business models.
1.20
The PC suggested that governments ‘show leadership in their own practices, redesign regulation to enable, rather than block, the adoption of digital technologies, and mitigate community level risks where practical.’
Productivity Commission Report on Collection Models for GST on Low Value Imported Goods (2017)
1.21
On 30 June 2017, the government requested that the PC undertake an inquiry into collection models for GST on low value imported goods.
1.22
This followed the passage of amendments to the A New Tax System (Goods and Services Tax) Act 1999 in relation to collecting GST on low value imported goods from 1 July 2018.
1.23
The PC considered the effectiveness of the amendments and whether the legislated model of collecting the GST on low value imported products or an alternative collection model would be most suitable.
1.24
The PC submitted the report entitled Collection Models for GST on Low Value Imported Goods to the government on 31 October 2017.
1.25
The PC found that although the ‘legislated model has limitations and carries significant uncertainty about levels of compliance’, it was the most suitable collection model.
1.26
The PC recommended that:
The Australian Government should conduct a comprehensive review of the collection of GST on low value imported goods five years after the commencement of the legislated model, unless exceptional circumstances — such as extremely low compliance, unintended impacts on consumers or significant trade policy issues — warrant an earlier review.
Current Inquiries on the Digital Economy
Inquiry into the Trade System and the Digital Economy
1.27
On 8 August 2017, the Minister for Trade, Tourism and Investment,
the Hon Steven Ciobo MP, asked the Joint Standing Committee on Trade and Investment Growth to inquire into and report on the trade system and the digital economy.
1.28
The inquiry’s terms of reference are to inquire into and report on:
the responsiveness of Australia's trade architecture and regulatory system to the contemporary needs of the digital economy and disruptive technology; and
measures to improve the cyber resilience of Australia's trade-focused business sector
1.29
The Committee is looking at ‘ways to ensure that Australia’s trade system can keep pace with digital innovators’.
Digital Economy Strategy Consultation
1.30
On 19 September 2017, the Australian Government announced it would develop a national Digital Economy Strategy (the Strategy) and released a consultation paper.
1.31
The objectives of the digital economy strategy are to:
Build Australia’s competitive strengths and develop new strengths;
Develop digital business capability;
Develop a culture of lifelong learning and a global outlook;
Address the ‘digital divide’ in skills to help all Australians participate in the digital economy.
1.32
As part of the development of the Strategy, the Department of Industry, Innovation and Science hosted an online public consultation, inviting responses by 30 November 2017. The consultation received over 160 submissions.
1.33
Following the consultation process the government aims to launch the Strategy in the first half of 2018.
Committee Report Structure
1.34
Chapter 2 provides background and context for the Inquiry and considers: the small business and retail sectors in Australia; innovation in Australian businesses; e-commerce in Australia; and key digital economy technologies.
1.35
Chapter 3 outlines the consequences for Australian business of increased internet competition; the take-up of digital technology among Australian businesses and barriers to further take-up; the opportunities for business presented by emerging digital technologies; and other responses to internet competition.
1.36
Chapter 4 is focused on employment and skills and considers the effects of internet competition on employment levels and conditions in Australia; the digital skills of Australia’s existing workforce; future skill requirements in the digital economy; and how skill levels can be improved.
1.37
Chapter 5 looks at the role of the government in regulating the digital economy and internet competition. This includes: consideration of current government programs; regulation of internet businesses; taxation issues; the power of digital platforms; and promoting the Australian innovation system.