Economists know two big facts about mergers. On the upside, size can bring economies of scale. Larger firms can deploy their network to produce goods and services more efficiently.
On the downside, monopoly isn’t just an infuriating board game. When firms control a market, they tend to cut back output and raise prices. There’s a reason that much of corporate strategy is devoted to keeping competitors out: when you’re the only player, the game looks a whole lot sweeter.
Encouraging firms to enjoy economies of scale while curbing monopoly power is at the heart of merger laws. Most mergers are not anti‑competitive, and can be beneficial to the economy. But some mergers deserve closer scrutiny, to ensure that they are providing real benefits.
Unfortunately, Australia’s current system for scrutinising mergers is unfit for a modern economy. Analysis from the Australian Treasury’s Competition Taskforce finds that there are around 1,400 mergers taking place annually. Yet the Australian Competition and Consumer Commission only sees around 300 of these mergers. Three out of four mergers fly under the radar.
This system looks even odder in an international context. Almost every advanced country, including the United States, Japan, Canada and all European Union members, has a system that requires the compulsory notification of mergers. Australia is an outlier in not requiring merger notification. The result is that our competition watchdog is flying blind.
It’s hard to imagine anyone arguing that if we were building a merger approval system from scratch, Australia’s current system is optimal. There are no less than 3 pathways, which contributes to needless confusion and delays and can create an opportunity for strategic behaviour to avoid detection. And for the most part it isn’t transparent, with only a fraction of mergers reviewed by the Australian Competition and Consumer Commission every year done so publicly. There is too little available data on mergers and acquisitions, in an age where companies themselves are relying heavily on data.
That’s why Treasurer Jim Chalmers and I have announced the government’s commitment to reform Australia’s merger laws. Our proposal will make Australia’s merger approval system faster, stronger, simpler, more targeted and more transparent. By establishing a single administrative pathway, with the Australian Competition and Consumer Commission as the first instance decision maker, we aim to make mergers more efficient – and make the economy more efficient too.
Our merger proposals are the product of considerable engagement with experts and stakeholders, from the Business Council of Australia to the National Farmers’ Federation. We do not expect everyone to agree, but we do appreciate the many responses to Treasury’s consultation process (which ran from November 2023 to January 2024), and the fact that the position of the Australian Competition and Consumer Commission has evolved since August 2021, when the organisation first kickstarted a national discussion about merger reform. This willingness to engage with business and work to develop the best possible proposal is a credit to chair Gina Cass‑Gottlieb and her predecessor Rod Sims.
Leading the government’s consultation over merger reform has been Treasury’s Competition Taskforce, overseen by an Expert Advisory Panel comprising Kerry Schott, David Gonski, John Asker, Sharon Henrick, John Fingleton, Danielle Wood and Rod Sims. Their expertise has been invaluable in shaping a reform package that is economically sound and practically workable.
For the Australian economy, the benefits of competition reform are substantial. In 1992, Paul Keating asked Fred Hilmer, Geoff Taperell and Mark Rayner.to propose practical competition reforms that would boost economic growth. The Hilmer competition reforms covered areas such as electricity pricing and rail connectivity. They entailed detailed collaboration with states and territories. The result was one of the best decades of productivity growth in the post‑war era. According to the Productivity Commission, the National Competition Policy reforms of the 1990s led to a permanent 2.5 per cent lift in GDP, equivalent to $5,000 for every Australian household.
Today, the challenges are different, but the ambition is just as high. Modernising Australia’s merger laws will be good for consumers, who are always the greatest beneficiaries of competition. But they may also be important for employees, who gain from a competitive labour market, where firms cannot wield monopsony power.
A modern merger system will also be good for shareholders. According to ‘The Merger Mystery’ by Geoff and J. Gay Meeks, a surprising number of mergers end up reducing profits and share market value. For the sake of shareholders, workers and citizens, it is important to ensure that Australia’s regulatory system is not facilitating value‑destroying mergers.
Under the former government, productivity languished and real wages stagnated. The Albanese Government is determined not to repeat the same mistakes. Our competition reforms are all about creating a more dynamic and productive economy. Ultimately, productivity growth is the only sustainable foundation for long‑term wage growth. A modern merger system will help households and businesses build prosperity for the decades to come.