Coalition Senators' additional comments

Introduction

1.1The Government has failed to adequately recognise and address competition risks and sector-specific challenges across the Australian economy.

1.2No meaningful progress has been made under the Government on key competition reforms, including on the Consumer Data Right, News Media Bargaining Code and Digital Services Platform inquiry.

1.3This continues to rob consumers of the choice, lower prices, better goods and services, and market innovation that competition delivers.

Australia’s competition challenge

1.4Australia’s competition challenges are concentrated in sectors of the economy, rather than economy-wide. These concentrated sectors include supermarkets, where two major operators control around two-thirds of the market, hardware, aviation, energy and the digital economy.

1.5The Australian Competition and Consumer Commission (ACCC) has rightly flagged these as the sectors where competition should be strengthened, and the Coalition believes that it is here, provided it does so with the correct focus, that the ACCC should scrutinise transactions which are likely to increase market power and reduce competition.

Coalition’s approach to competition

1.6The Coalition is committed to competition reform that enhances growth, delivers real benefits for Australian consumers and businesses and, critically, puts the customer in charge.

1.7A successful competition regulatory framework must deliver results to justify its costs and create an environment in which businesses and innovation grow, rather than get wrapped in red tape.

1.8Customers are the best regulator in each sector. Provided there is sufficient competition, consumers inform each other about the price of a product and send a signal to other consumers that businesses must then respond to.

The Coalition’s position on the Bill

1.9The Coalition supports strong competition policy and the principle of aligning Australia’s merger regime with international best practice.

1.10While the Coalition does not oppose the passage of this Bill, it puts on record several matters of concern, which, if not thoroughly monitored and mitigated against, will jeopardise the competition benefits the Bill seeks to achieve.

1.11In detailing these concerns, the Coalition notes many of them can be minimised through competent implementation of the merger regime.

Feasibility of scaled pre-approval and the risk of ACCC cost blow-outs

1.12The estimated cost of to the ACCC of a single phase 2 review is $500,000 or more. While we acknowledge that the majority of transactions will be processed in the shorter, less detailed, and cheaper phase 1, the reality is that the costs to the regulator are very significant and risk of blowing out its funding when the scale of transactions becomes known is a major consideration.

Impact on business activity and innovation, especially for SMEs and start-ups

1.13The potential impact of the Bill on Small and medium-sized enterprises (SMEs) and start-ups must be closely considered. Compliance costs risk stifling growth in a sector where it is most needed. Start-ups also require a flexible operating environment that allows for rapid strategic changes, and measures such as universal pre-authorisation requirements risk inhibiting these businesses, growth and innovation.

1.14The Technology Council of Australia expressed concern that the complexity and uncertainty introduced by the Bill may reduce investment in Australian start-ups ecosystem. This would drive investment overseas and limit the growth of innovative tech companies.

1.15Mr Damian Kassabgi:

Additionally, we have procedural concerns such as broad ministerial discretion to set target notification thresholds and an inappropriate penalty regime and third-party appeal regime. Together these issues risk introducing some complexity and uncertainty to the merger review framework, which we are happy to speak further about today.

We believe that Australia can be the next place for an Atlassian, Campbell or Afterpay. This is the new kind of increase in wealth for Australia. It is the place where our economy is becoming more complex.[1]

Compliance burden being imposed across the economy

1.16The Bill is well intentioned, but it does impose a compliance burden on businesses of all sizes economy-wide. The Coalition is hopeful it will address insufficient competition in concentrated sectors but fears it also has the potential to burden sectors where competition remains healthy.

1.17This is a major concern given the burden will be heaviest on those businesses that can least afford it, particularly small to medium-sized enterprises for whom the estimated compliance costs of $50,000 to $100,000 may be crippling. As noted above, these companies require flexibility, rather than a policy framework that handles them in the same way as a large, market-dominating operator.

1.18Therefore, the Government must consider whether this ‘blanket’ approach meets the Bill’s intended objectives or instead wraps businesses in even more red tape and compliance expenses than they are currently dealing with.

Need to balance regulatory action with market confidence

1.19On this point, the merger regime can only succeed if it balances the amount of regulation with preserving market confidence.

1.20The Business Council of Australia’s Mr Stephen Walters stressed the enormous importance of a functioning regime that avoids unnecessary regulation and encourages investment:

As highlighted in the BCA's submission to the committee, the design and execution of the Australian government's merger reforms are critically important to all Australians. A well-functioning regime will foster confidence in investing in Australia with appropriate guardrails to prevent the degradation of competition. We should all want this. But a poorly functioning regime would add cost and red tape and could lead to a loss of confidence to invest in Australia, increased regulatory and transactional complexity, and limit Australia's economic growth.[2]

Risks and concerns regarding implementation

1.21The Coalition stresses that the success of the regime hinges entirely on the Government paying close attention to, and acting in a timely and consultative matter on, the below implementation risks. If it fails to do so, and proceeds with incorrect policy settings, the regime will fail to meet its objectives.

1.22At this point, the Coalition notes with concern the Government’s poor stewardship of complex policy matters to date. This is best demonstrated by its mismanagement of the Australian economy and its slowness, as already highlighted, to progress key competition initiatives including the Consumer Data Right, supermarket reforms, the Digital Services Platform and the News Media Bargaining Code.

1.23This stands in contrast to the proactivity of the Coalition on competition reform, with a comprehensive plan for the supermarket sector, multiple Private Senator’s Bills providing targeted competition improvements to airline travellers and forcing the Government to progress the Consumer Data Right.

ACCC capacity to deliver on its obligations

1.24These reforms will be one of the most significant tests of the ACCC’s capacity in its history.

1.25Dr Kerry Schott, Competition Expert Advisory Panel member, recognised the challenges the merger regime poses for the regulator:

This is a really major reform for the ACCC and for the legislation and much overdue in my view. But implementing a change like this comes with risk.[3]

1.26ACCC Chair, Ms Gina Cass-Gottlieb, acknowledged the organisational – and personal – scrutiny involved:

I know you're going to hold me to account today and going forward—to tell you it’s going to be very carefully implemented to deliver on being faster, simpler and stronger.[4]

1.27Dr. Schott highlighted the need for the ACCC to be sufficiently equipped to manage the increased workload, which also represents a focus shift:

...and it's very important that the ACCC get the additional resources in place that it's going to need to become much more economic and industry-focused than focused on very technical legal matters.[5]

1.28The ACCC’s budget and staffing have grown notably over the last five years, receiving an extra 400 staff and more than $200 million in increased funding. Whether the case for further funding has been adequately worked through remains an important question and, while the Coalition completely supports a strong ACCC with capacity to deliver better competition outcomes, additional regulatory expenses must be justified in the current economic climate.

1.29This is particularly the case given stakeholders suggest the actual number of transactions could significantly exceed the Government's projections, potentially resulting in annual costs above $100 billion.

Delays under the new regime

1.30Delays connected to the mandatory reporting regime were, unsurprisingly, a major and recurring concern for stakeholders.

1.31Dr Schott recognised this when she stressed the importance of adhering to stipulated timeframes for merger approvals:

I think, as I mentioned earlier, the review process in 12 months’ time will help with seeing how it's travelling. But it is very important that the timelines are pretty much kept to what we expect they will be...[6]

1.32The Technology Council of Australia expressed concern about the ACCC’s power to extend review timelines, which could lead to extended delays:

Mr Damian Kassabgi: ...extended delays arising from the ACCC’s discretionary power, particularly in the phase 2 assessment stage…[7]

Ms Madeline Houghton: …there are concerns particularly around the process of the current informal regime – there is a lot of uncertainty…[8]

1.33Potential consequences of the ACCC’s ‘stop the clock’ and ‘start the clock’ powers were addressed by the Business Council of Australia in both its submission and evidence, with Senior Economist Ms Alice Bailey noting:

…if you stop the clock, that is not captured in the traditional timelines. So we do think it is important that there is visibility about how these are used. Also, that will go to things like whether the notification forms—which, as you would be aware, are subject to legislative instrument as well—are hitting the mark and whether they need to be refined in order to reduce the need for the 'stop the clock' reliance...[9]

1.34The ACCC acknowledged these stakeholder concerns and, while it maintained that the proposed timeframes are reasonable, noted the concession made to the Business Council of Australia that will see it report on usage of its extension powers and the duration involved:

1.35Ms Gina Cass-Gottlieb:

So the clock is running for us, and we must approve within the set timeframes … In addition—I know so I will jump to it; the BCA said it, and the Tech Council also said it—there is a concern about the question of stopping the clock and starting the clock. It will first be transparent because we will have to show it on the register every time we use it, but we are also very willing—and we will include it in our implementation plan—to commit to reporting on the use of that ability to extend.[10]

1.36In its submission to the Treasury consultation process on the Bill, the Business Council of Australia also suggested a series of key performance indicators on merger timelines be publicly reported on a quarterly basis, including the average time for pre-notification consultation, phase 1, 2 and 3 assessments, and the assessment of notification waivers.[11]

Thresholds

1.37The potential burden on businesses arising from the mandatory phased approach focused heavily on the thresholds and subsequent obligations contained in the Bill.

1.38The Australian Investment Council expressed concern about the likelihood of over-notification:

The Sections emphasise the importance of clear, and appropriately set, thresholds to avoid unnecessary notifications and burdens on both merging parties and the ACCC, observing that low thresholds could lead to an excessive number of non-problematic deals being reviewed.[12]

1.39This was echoed by the Technology Council of Australia, which argued the proposed notification thresholds are set too low and risk capturing nearly every acquisition made by an Australian technology company.

1.40Mr Damian Kassabgi:

...notification thresholds being set too low, potentially capturing nearly every acquisition made by an Australian technology company and leading to over-notification to the ACCC, causing delays and stifling investment.[13]

1.41The Law Council of Australia submitted that clear and appropriate thresholds are crucial to preventing overwhelming both merger parties and ACCC:

…when overlaid on various jurisdiction-specific elements (e.g., the public benefits process), the regime outlined in the Draft Legislation is likely to create undue burdens for both merger parties and the ACCC.[14]

1.42To mitigate this, the Law Council of Australia proposed a short form filing process for straightforward transactions:

If not more appropriately balanced, these issues have the potential to stifle and disincentivise global investment and M&A activity in Australia, in circumstances where the Australian regime has scope to represent one of the most lengthy and resource-intensive pre-merger filing processes on the global stage.[15]

1.43Questioned by Senator Smith about the difficulty establishing appropriate threshold levels, Dr Schott acknowledged that it involved subjective assessments:

I wouldn't say there was any tension. It was more of an issue of where the number should sit—is 200 million the right number? That's where we landed, but it could have been 250 or it could have been 150. It felt about right, but that's the sort of judgement I was referring to.[16]

1.44But Dr Schott reminded the public hearing of the importance of setting thresholds that capture anti-competitive mergers that might otherwise escape attention:

Whatever number you land on is going to be pretty close to where we landed as being the right one—you don't want things happening that the ACCC has never seen that it should have seen. I think we were about right. We did have a big discussion about those thresholds, and that's where the main judgement was.[17]

Additional Business Council of Australia proposals

1.45The Business Council of Australia made two further recommendations directed at improving implementation of the Bill. It proposed data on the number of s155 notices issued to merger parties be published once the regime is introduced, including the stage in the process at which each notice is issued. It also recommends the establishment of a consultative committee with the business and legal community to support regime transition and implementation. This committee would operate in addition top the existing ACCC Regulator Performance Consultative Committee.[18]

Importance of a review mechanism

1.46Given these implementation risks and the possibility of their failing, the Coalition is highly supportive of the planned review of the merger regime after one year.

1.47This is a critical opportunity to assess the standard of the Government’s implementation, if the regime is functioning efficiently and meeting its aims, and whether the costs of this new regulatory framework are justified by its benefits to competition across the economy.

1.48This is consistent with the position of the majority of submitters, with the Business Council of Australia suggesting ongoing monitoring will be needed to ensure its effectiveness:

1.49Ms Bailey:

Timeliness has been an important feature of the reforms and the government's intent. The 'stop the clock' and 'restart the clock' provision are in addition to those timeframes. For example, as you would be aware, if you stop the clock, that is not captured in the traditional timelines. So we do think it is important that there is visibility about how these are used. Also, that will go to things like whether the notification forms—which, as you would be aware, are subject to legislative instrument as well—are hitting the mark and whether they need to be refined in order to reduce the need for the 'stop the clock' reliance et cetera. So we think that is an important feature, particularly when it comes to the reviews three years down the track from its operation to make sure that it is hitting the mark.[19]

1.50Ms Siew Lee Seow of the Australian Information Industry Association noted the importance of timely reviews of the thresholds in particular, in an effort to keep pace with changing conditions in specific sectors:

Finally, we urge timely reviews of these thresholds to keep pace with the fast-changing dynamics of the tech sector. Our ask is that these thresholds be reviewed at least every two years to ensure that they are not lagging behind what is happening in the global economy.[20]

1.51As has been the case throughout this inquiry, the Coalition remains committed to working towards balanced, effective and targeted solutions that will strengthen competition where it is most needed, while supporting growth and innovation.

Recommendations

1.52The Coalition support passage of the Bill, while noting the critical need for effective, responsive and transparent implementation.

1.53An expert implementation advisory panel be established, with the Competition Taskforce Advisory Panel and key submitters to this inquiry including the Business Council of Australia and the Technology Council of Australia among those represented.

1.54Treasury and ACCC officials make themselves available to provide a private briefing to the Senate Economics Committee on merger regime implementation progress on a quarterly basis.

1.55Serious consideration be given to the implementation proposals highlighted by the Business Council of Australia that have not yet been adopted, namely the quarterly publication of key performance indicators on merger timelines and the publication of s155 notices data.

Footnotes

[1]Mr Damian Kassabgi, Chief Executive Officer, Tech Council of Australia, Committee Hansard, 30October 2024 p. 7.

[2]Mr Stephen Walters, Business Council of Australia, Committee Hansard, 30 October 2024 p. 1.

[3]Dr Kerry Schott AO, Panel Member, Competition Expert Advisory Panel, Committee Hansard, 30 October 2024 p. 12.

[4]Ms Gina Cass-Gottlieb, Chair, ACCC, Committee Hansard, 30 October 2024 p. 16.

[5]Dr Schott AO, Committee Hansard, 30 October 2024 p. 12.

[6]Dr Schott AO, Committee Hansard, 30 October 2024 p. 12.

[7]Mr Damian Kassabgi, Committee Hansard, 30 October 2024 p. 7.

[8]Ms Madeline Houghton, Policy Manager, Tech Council of Australia, Committee Hansard, 30 October 2024 p. 8.

[9]Ms Alice Bailey, Business Council of Australia, Committee Hansard, 30 October 2024 p. 4.

[10]Ms Gina Cass-Gottlieb, Committee Hansard, 30 October 2024 p. 16.

[11]Business Council of Australia, Submission to Treasury consultation, p. 4.

[12]Australian Investment Council, Submission 4, p. 2.

[13]Mr Damian Kassabgi, Committee Hansard, 30 October 2024 p. 7.

[14]The Law Council of Australia, Submission 11, p. 7.

[15]The Law Council of Australia, Submission 11, p. 8.

[16]Dr Schott AO, Committee Hansard, 30 October 2024 p. 13.

[17]Dr Schott AO, Committee Hansard, 30 October 2024 p. 13.

[18]Business Council of Australia, Submission to Treasury consultation, p. 4.

[19]Ms Bailey, Committee Hansard, 30 October 2024 p. 4.

[20]Ms Siew Lee Seow, General Manager, Policy and Media, Australian Information Industry Association, Committee Hansard, 30 October 2024 p. 7.