Greens Senators' Additional Comments

1.1The Greens welcome the Treasury Laws Amendment (Mergers and Acquisitions Reform) Bill 2024 as a much needed step to prevent Australia’s economy from becoming even less competitive.

1.2However, the Greens are deeply concerned that the Labor Government is not prioritising reforms that would make markets more competitive, including by introducing economy-wide divestiture powers to break up corporations that abuse their market power.

1.3Over the last couple of decades, successive Labor and Liberal governments have allowed the biggest corporations across the economy, including in the airline and supermarket sectors, to hold a high and growing share of market power.

1.4This is supported by Treasury analysis, which shows that the market power of Australia’s largest corporations has increased in the last two decades.[1]In more than a fifth of Australia’s industries, the two biggest firms now control at least half the market.[2]

1.5Market concentration impedes competition and is a drain on the economy as a whole. It slows innovation, impacts the quality of products available to consumers and leads to higher inflation through excessive prices.

1.6As the Australian Competition and Consumer Commission (ACCC) submission to the Exposure Draft stated:

As we know, concentrated markets are generally not good for consumers – or indeed for economic growth and productivity. Companies operating in concentrated markets tend to charge higher price markups above costs for their goods and services. They also often have less incentive to compete by innovating in ways that benefit consumers.[3]

1.7Treasury research shows increased market concentration in Australia has coincided with higher price markups and sluggish productivity. Average firm mark-ups in Australia increased by around 6 per cent between 2004 and 2017.[4]

1.8The high level of market concentration in key sectors of our economy has contributed to the inflationary cycle and cost-of-living crisis Australians are currently experiencing. At Estimates in February 2024, Reserve Bank Governor, Michelle Bullock agreed that some firms may be using a lack of competition and the cover of high inflation to hike prices above what would be required to meet increases in their input costs.[5]

1.9Ms Bullock joins growing consensus among economists, including at the Organisation for Economic Co-operation and Development, the International Monetary Fund, the European Central Bank, the Bank of England, the Federal Reserve, former ACCC Chair Allan Fels that some corporations may be price gouging to boost their own profits, in a cost of living crisis, which is making inflation worse.[6]

1.10Increased markups and price gouging represents millions more profits for corporations while everyday people increasingly struggle to afford to pay for essential products and services.

1.11A strong merger regime that effectively stops anti-competitive mergers is important to prevent markets from getting even more concentrated and less competitive.

1.12The ACCC has been clear that Australia’s merger regime is ineffective and needs significant reform. The ACCC has indicated that the current model ‘is not fit for purpose and is out of step with international best practice’ and ‘does not provide the necessary tools to effectively assess and prevent anti-competitive mergers.’[7]

1.13Currently Australia's merger regime does not require merger parties to notify the ACCC of proposed acquisitions or to wait for ACCC clearance before proceeding. As a result, the ACCC may not be made aware of potentially anti-competitive mergers or may become consumed by lengthy and expensive legal proceedings to try and prevent or reverse anti-competitive mergers through the Federal Court.

1.14In March 2023, the ACCC outlined the ‘ACCC’s proposals for merger reform’ to the Treasury.[8]The Bill incorporates some of the key changes the ACCC suggested, including:

Mandatory notification of mergers above prescribed monetary thresholds;

A move from a judicial enforcement model to a primarily administrative regime, with the ACCC as the first instance decision maker and the Competition Tribunal on review;

A prohibition on merger transactions proceeding without receiving a determination from the ACCC or Competition Tribunal; and

Strengthening the substantial lessening of competition test in section 50 to block mergers that create, strengthen or entrench substantial market power.

1.15The Greens are disappointed the Treasurer prioritised the demands of big business over the wishes of the ACCC by not including important changes the ACCC was seeking, including:

A call-in power for the ACCC to call-in any potentially anti-competitive mergers below the prescribed thresholds, and;

Reversing the onus of proof under the clearance test so the merger parties are required to prove that the transaction is not likely to substantially lessen competition instead of the current model where the test requires the decision maker to be satisfied that the transaction will substantially lessen competition.

1.16However, we understand that despite some concessions to big business, the ACCC supports the Bill in its current form, indicating that it ‘will provide the ACCC with fit for purpose tools targeted at identifying and preventing anti-competitive mergers.’[9]

1.17Former ACCC Chair’s, Professor Allan Fels AO and Rod Sims AO indicated in evidence to the inquiry that they also strongly support the Bill.[10]

1.18At the hearing into the Bill, the ACCC Chair, Ms Gina Cass-Gottlieb, noted the importance of the Bill passing parliament by the end of this year to enable the ACCC to dedicate the required resources to smoothly transition to the new regime by the time it commences on 1 July 2025.[11]

1.19That the Bill be passed as soon as possible.

1.20The Greens call on the Labor Government to build on these reforms and make markets more competitive by supporting the Greens’ push to introduce economy-wide divestiture powers to break up massive corporations that abuse their market power.

1.21In February 2024, the Australian Council of Trade Unions inquiry into price gouging, led by Professor Allan Fels AO, recommended Australia should introduce a divestiture law to allow big firms to be broken up where the Court determines a firm has broken competition law.

1.22On 20 March 2024, Senator Nick McKim introduced the Competition and Consumer Amendment (Divestiture Powers) Bill 2024 to give the Courts and competition regulators the power - where misuse of market power has occurred - to break up firms across the economy.

1.23Disappointingly, the Greens Divestiture Powers Bill did not pass the Senate, as both major parties chose to side with massive corporations over the interests of ordinary people.

1.24When the Prime Minister was asked about divestiture powers, he dismissed the idea as ‘Soviet Union’ policy.[12]

1.25But, divestiture powers are not a controversial or radical idea. The United States of America has had divestiture powers for over 130 years, since 1890, where they’ve been used effectively to reduce the market power of companies in a range of industries, including the break-up of the AT&T telephone monopoly in the 1980s.

1.26As Professor Allan Fels noted in his submission to the Bill: ‘the USA, the home of free markets, has used divestiture power carefully and only occasionally but to great effect.’[13]

1.27The UK also has divestiture powers. The competition agencies of Ireland, Italy and the Netherlands have all recently required the divestment of supermarket assets in order to increase local competition.

1.28The ACCC Chair, Ms Cass-Gottlieb, has agreed that if court-supervised divestiture powers were introduced they could increase competition in the supermarket sector and under economic analysis, this would bring down the cost of grocery prices.

1.29On 4 November 2024, the Coalition introduced the Competition and Consumer Amendment (Tougher Penalties for Supermarket and Hardware Businesses) Bill 2024 to introduce divestiture powers to the Competition Act for supermarkets and hardware businesses. Whilst the Greens and experts, including Professor Allan Fels, support economy-wide not sector specific divestiture powers, this is a good start.

1.30The Labor Government should no longer remain isolated in its defence of the supermarket duopoly’s massive market power and price gouging of Australian shoppers.

1.31The Government should prioritise reforms that would make markets more competitive and bring down the cost of essential goods and services, including by introducing economy-wide divestiture powers to allow for corporations that have misused their market power to be broken up.

Senator Nick McKim

Member

Greens Senator for Tasmania

Footnotes

[1]Treasury, Competition in Australia and its impact on productivity growth, prepared by Iris Day, Zac Duretto, Patrick Hartigan and Jonathan Hambur, October 2022, pp. 15-16, https://treasury.gov.au/sites/default/files/2022-10/p2022-325290-productivity-growth.pdf.

[2]The Conversation, Adam Triggs, New finding: in 49 Australian industries the major firms are owned by common investors, June 2021, https://theconversation.com/new-finding-in-49-australian-industries-the-major-firms-are-owned-by-common-investors-159809.

[3]Australian Competition & Consumer Commission, ACCC submission: Reforming mergers and acquisitions – Exposure draft, August 2024, p. 1, https://treasury.gov.au/sites/default/files/2024-10/c2024-554547-accc.pdf.

[4]Treasury, Competition in Australia and its impact on productivity growth, prepared by Iris Day, Zac Duretto, Patrick Hartigan and Jonathan Hambur, October 2022, pp. 16-17, https://treasury.gov.au/sites/default/files/2022-10/p2022-325290-productivity-growth.pdf.

[5]Economics Legislation Hansard, Additional Estimates, 15 February 2024, p. 11, https://www.aph.gov.au/Parliamentary_Business/Senate_estimates/Economics/2023-24_Additional_estimates.

[6]The Centre for Future Work at the Australia Institute, Profit-Price Inflation: Theory, International Evidence, and Policy Implications, September 2023, pp. 9-16, https://australiainstitute.org.au/report/profit-price-inflation-theory-international-evidence-and-policy-implications/; Australian Council of Trade Unions, Inquiry into Price Gouging and Unfair Pricing Practices, February 2024, p. 2, https://pricegouginginquiry.actu.org.au/wp-content/uploads/2024/02/InquiryIntoPriceGouging_Report_web.pdf.

[7]Australian Competition & Consumer Commission, Outline to Treasury: ACCC’s proposals for merger reform, March 2023, p. 1, https://www.accc.gov.au/system/files/submission-to-treasury-regarding-merger-reform.pdf.

[8]Australian Competition & Consumer Commission, Outline to Treasury: ACCC’s proposals for merger reform, March 2023, p. 1, https://www.accc.gov.au/system/files/submission-to-treasury-regarding-merger-reform.pdf.

[9]Australian Competition & Consumer Commission, Media Release, 10 October 2024, https://www.accc.gov.au/media-release/accc-welcomes-introduction-of-merger-reform-bill-prepares-for-implementation.

[10]Professor Allan Fels, Submission 14, pp. 1-2; Senate Economics Legislation Committee Hansard, 30October 2024, p. 11.

[11]Senate Economics Legislation Committee Hansard, 30 October 2024, p. 21.

[12]Australian Financial Review, February 2024, ‘We’re not the Soviet Union’: PM rules out breaking up Coles, Woolies’, https://www.afr.com/politics/federal/we-re-not-the-soviet-union-pm-rules-out-breaking-up-coles-woolies-20240222-p5f722.

[13]Professor Allan Fels, Submission 14, p. 2.