27 October 2008

Interview with John Stanley, 2UE 954 AM

SUBJECTS: Cartels, Financial Crisis, Australian dollar, FuelWatch, petrol.

JOHN STANLEY:

Today we have the dollar hovering at around 62 US cents. You've been hearing about these meetings in Canberra with investment fund managers there we now have got some -$24 billion in funds now frozen. Colonial First State joining other mortgage funds which are blocking the release of their funds and there is great concern about that. Heard from the Federal Government today might assist consumers as the economy tightens, I'm not sure of the extent at which it will but we'll find out more. It's a move for new laws and penalties over price fixing. The Assistant Treasurer Chris Bowen has been announcing this today, he joins me now.

Chris Bowen good afternoon to you....

CHRIS BOWEN:

Good afternoon John.

JOHN STANLEY:

What's your opinion? The line dropped out. This fellow pulled into a service station it's advertising 4 cents a litre off as they do in the Woolies service stations when he's walked in there with his credit card, he's told oh there's a 5 percent surcharge for using your card, I think if you're going to have that you'd have to display it outside wouldn't you?

CHRIS BOWEN: Well look I heard the last bit of that but I'd just thought I'd comment that you are obliged to make it clear, but the exact location in relation to where you fill up is something I need to have a look into. I think he makes a valid point.

JOHN STANLEY:

We'll get some details off air from him.

CHRIS BOWEN: The credit card charges that are applied on the retailer are not 5 percent they're less than 5.

JOHN STANLEY:

Well that's right.

CHRIS BOWEN:

That's why I think...

JOHN STANLEY: I think if you talk about price gouging I think the retailer is doing that.

CHRIS BOWEN:

I'll have a good look at the issue.

JOHN STANLEY:

We'll find out exactly where it is, we'll get it, we might even give them a call to find out if they can justify doing that.

Now price fixing: it's going to be a criminal offence for the first time in Australia?

CHRIS BOWEN:

That's right John. We're one of a few countries that haven't had this as a criminal offence, it was recommended way back in 2003, and we're going to do it. It should be a criminal offence to run a cartel to rip off consumers and what was announced today is a jail term of 10 years and also accordingly we are giving the ACCC the power to tap telephones in conjunction with Federal Police with so they can investigate these cases because they are difficult to prove, its hard to gather the evidence. So this is a substantial step that we're taking today to improve outcomes in competition policy responses.

JOHN STANLEY:

How do you explain then, to our listeners who go to service stations, go along to the local shopping centre, how do you explain to them how this will affect them? What kind of price fixing are you talking about that is now a criminal offence?

CHRIS BOWEN:

Well what you get John, is cartels. And that can happen in a variety of ways: it can be people saying, 'look let's not cut each other's throats here guys, why don't you bid for that job and I'll bid for that job and we won't undercut each other and we'll all make a bit more money through the process'. And there've been some high profile cases of this, which I won't comment on specifically; but there've been instances of this in the past.

One of the issues that we have of course is that cartels are, by their nature secret and hard to prove, so I can't give you an exact figure of the cost to the community; but they are occurring and we need to send this message. I hope that nobody goes to prison but the whole idea of this is to send a very clear message: if you're contemplating doing this, then you are risking 10 years in prison.

I came to the conclusion, and so did the Government, that there was no financial penalty which will concentrate peoples' minds because there's some potential to make a lot of money out of doing this. People could be forgiven for saying, well I've got the potential to make a lot of money and potential to lose some money, so I'm going to take the risk.

When you have the potential to go to prison for 10 years, it's a very different decision being contemplated.

JOHN STANLEY:

What about the obvious concerns people will raise which would be of petrol stations and petrol companies, and also the banks. The banks all move as one. For instance, on the day of the last interest rate reduction they all dropped their interest rates by 0.8 of a percent. Their financial circumstances can't all be the same. Would that fall into the category of price fixing if they talk to each other?

CHRIS BOWEN:

Certainly if they talk to each other about it, it's a cartel. If you say to your competitors, lets all do this, let's all put our prices up by this amount - then that's a cartel. Now what is not a cartel is if somebody does that and everyone else follows the market without talking to them about it.

Now that's one of my concerns. For example, with fuel, people say to me all the time, don't you think it's called collusion in the petrol industry? I say no what we have in petrol industry is what's called tacit collusion or what the ACCC calls 'as close to collusion as you can get without it being illegal' because often people don't necessarily talk to each other but the service station puts their price up by one cent a litre and then people at the others do so in response and often at the end of the week it's a lot more than a cent a litre. So you have what's called tacit collusion, that's why we brought in FuelWatch so that people are obliged to lock-in their prices 24 hours in advance and you'll get rid of that tacit collusion. But these are different responses to people's problems.

JOHN STANLEY:

That's right, alright so at the grocery level, that's where there's a lot of concern about the power of the large grocer's.

CHRIS BOWEN:

Again, I can't comment on specific cases; but this will apply across the board and it will apply to price fixing and cartels. I have to stress John, that cartel conduct is when retailers get together and compare notes on pricing and agree on what prices should be, or agree to break up markets between themselves. That should be a criminal offence and will be a criminal offence.

What it doesn't deal with is if people are following prices after somebody else is done it because, you can't outlaw that; but you can outlaw people getting together and colluding to rip off consumers.

JOHN STANLEY:

We've seen over the last week or so, a couple of people who have engaged in significant reductions in petrol prices and some of it was in conjunction with television programs; and for a couple of hours they dropped their price significantly; and it all began because of a price war. Now the suggestion's been if FuelWatch was operating, those people wouldn't have been able to engage in that price war. There's some validity to that, isn't there?

CHRIS BOWEN:

Well I don't think so. People will still be able to set their own prices; but what they have to do is put in their best price upfront. As I say, what we have at the moment is tacit collusion.

JOHN STANLEY:

We won't have people bidding prices down over a series of a few hours?

CHRIS BOWEN:

Well no, but what you will have is people bidding prices down for the whole day. You'll have people saying, look I've got to live with this price all day; if I put it too high I'm not going to sell any petrol, so I'll have to make the price as low as I possibly can and that's what FuelWatch is all about. I want to get rid of this situation when you drive past a petrol station thinking, oh that's not a bad price but I don't have time just at the moment so I'll do it on the way back, and you go back and it's gone up 20 cents a litre. Nobody wins out of that.

I've had people emailing me saying look I lined up at a petrol station, I saw a good price, but while I was in the cue they put the price up 15 cents a litre. I mean that's not the market working for consumers and the problem is that service stations share information with each other. Not all of them on the phone, but a lot of them share information with each other through a secret website and they can see - in real time - what each other's prices are. Whereas you and I, and every other poor bugger, have to drive around trying to find the cheapest petrol; so we're at a big disadvantage.

FuelWatch will give the consumers the chance to be on a level playing field as the retailers, by letting them see what the price is upfront and in advance.

JOHN STANLEY:

Now to the meeting in Canberra: Treasury people and the fund managers. There's a real problem here, isn't there, with the mortgage trusts and having Colonial First State freezing redemptions?

CHRIS BOWEN:

Well, we've seen very turbulent times across the world, and I've got to say, we are seeing Governments around the world struggle with these issues. I just last week met with the finance ministers of France and Germany and the EU and the OECD and it's a very serious situation. There's a lot of interest in what the Australian Government has done - and the wider community around the world - so the Australian Government has been ahead of the curve on these issues. We'll have to, of course, continue to respond flexibly to these developments that are happening hourly.

JOHN STANLEY:

But specifically the people who've got their money frozen would be terrified. You can see why they'd be absolutely terrified.

CHRIS BOWEN:

Certainly you can understand people's concerns. Now there are differing circumstances in different funds. In the majority of cases the income flow has continued. So while the ability to withdraw the money has been frozen the income flow has continued. That's not the case in every single one of them but that's the case in the majority. But I can certainly understand peoples concerns.

It was necessary to put the guarantee on bank and other financial institution deposits to make sure that they had ongoing confidence. We'll continue to respond. The meeting today, I imagine, is still going, well it would have just started a little while ago. There will be a series of meetings to ensure that we are responding as we need to.

JOHN STANLEY:

Is there a chance of any sort of guarantee for those funds?

CHRIS BOWEN:

Well, look, we've been - from the beginning - clear that this is about guaranteeing bank deposits and other financial institution deposits because that's where people go for certainty.

Now what we haven't done is go down the road of guaranteeing market linked deposits; because that's where people take risk and you need to be careful of taxpayers' money there. What we can't do is, issue a general guarantee that any investment that you make has a capital guarantee, because it's all about people saying, 'well I'll have a lower return for higher certainty or I'll have a higher return but I'll take a bit more of a risk'. It's not the role of the Government to get into that task.

What we've done is said, well every financial institution which is government regulated by APRA, we will guarantee; because we have confidence in the regulator. Now we have confidence that there won't be a problem and we are happy to put our money where our mouth is. If you are getting into the other territory, of course we will continue, as I say, to respond as we need to, but there is a contention there.

JOHN STANLEY:

Twenty-seven past three, just a final one: the dollar is down to 62 US cents today, the Reserve Bank has been in there trying to prop up the dollar.

CHRIS BOWEN:

The Reserve Bank gets involved in these things regularly. Of course we have a floating dollar but the Reserve Bank does buy and sell, to try and bring a bit more stability to the market - exactly as they've done today. They do on a regular basis get involved, just to try and keep it a little more stable; but of course market forces determine the strength of the dollar or otherwise, and it moves up and down. The Reserve Bank's involved very regularly to try and get a bit more stability.

JOHN STANLEY:

Chris Bowen, thank you

CHRIS BOWEN:

Thank you John