My thanks to those Members who have contributed to this debate. I also acknowledge the work of both Minister Julie Collins and Assistant Treasurer Stephen Jones on this legislation.
This Bill delivers on an election commitment to protect Australian households and small businesses by banning unfair contract terms, and increasing penalties for anti‑competitive behaviour.
The Australian Labor Party has a long, rich history of economic reform that builds a fairer and more resilient economy. Competition is an essential part of that for three key reasons.
First, competition is about fairness. Without government action, monopolists can wield their power to rig the game in their favour, rather than compete on even terms.
Second, competition improves the cost of living and makes our supply chains more resilient. Competition means businesses offer Australians the best prices they can. A diverse and dynamic economy is also a resilient economy that is equipped to absorb, adapt to, and solve the challenges of an uncertain world.
We amplify the success of these vital efforts when we invigorate our economy through competition that is more open, more fair, and more inclusive.
Third, competition is about jobs and skills. Competition helps to ensure that most innovative, creative, and savvy businesses are the ones that thrive. It is these businesses that are the best placed to offer jobs that are stable, secure, and well‑paid.
Competition also gives workers more options, empowering workers to negotiate pay and conditions that reflect the value they offer.
This side of the House has recognised the importance of competition for decades.
It was Labor Attorney General Lionel Murphy who introduced the Trade Practices Act in 1974, which outlawed businesses colluding at the expense of Australian consumers.
It was Paul Keating in the 1990s who recognised that competition eased costs of living by both lifting wages and lowering prices. Working with Fred Hilmer, he backed it up by implementing reforms that transformed swathes of Australian regulation for the better, and helped deliver the 1990s productivity surge.
National Competition Policy was far reaching. Government businesses were restructured and made more efficient. A competitive national electricity market was established, and barriers to the free trading of gas across state and territory boundaries were removed.
It also saw sweeping micro‑economic reform. Around 1,800 laws and regulations that restricted competition were reviewed and, where appropriate, reformed. Before these reforms bakers in NSW could only bake bread at set times and families across the nation had to do their grocery shopping in a crowded mad rush on Saturday morning before shops closed for the weekend to comply with state‑based laws.
In 2005 the Productivity Commission found that the National Competition Policy permanently increased the size of Australia’s economy by 2.5 per cent. Today, that equates to around $50 billion a year, or around $5000 per household.
However, productivity growth has slowed in Australia since the mid‑2000s. Far from its peak of 2.5 per cent in the late 1990s, average productivity growth in the past 20 years was 1.2 per cent.
Weak productivity growth hits real wages, and the cost of living. By hitting national income, it also stifles our ability to invest in infrastructure, to plan for the future, and to lift up those who need support.
The productivity slowdown has been – at least in part – driven by a decline in dynamism. When workers move to more productive firms, they earn higher wages, and the economy benefits. Yet job switching has slowed in recent years, which can account for around a quarter of the recent productivity slowdown. Creating more opportunities for switching, through competition, is a key way to reverse this trend.
Another crucial measure of the health of an economy is the start‑up rate: how many new companies are being created every year? We can think of this as the business equivalent of the birth rate.
This measure is also in decline. Since the 2000s, there is a clear downward trend in the rate at which businesses enter the market. Our business environment is getting older, more rigid and more fragile.
More than ever, we need settings that allow start‑ups to enter the market and challenge the old guard on even terms. This means reversing the trend of market power concentrating ever more in a small number of firms.
When power is concentrated, monopolists can shift away from competing to invest in ‘moats’ that simply keep the competition out. Monopolists awash with cash can simply buy out new rivals and, much like the Borg from Star Trek, assimilate these rivals to take their strengths as their own.
One way of analysing market power is to look at industry concentration. Since 2001, the market share of the four largest firms in each industry has trended upwards. From baby food to beer, the top firms hold a high and growing share of the market.
For Australian consumers, this means higher prices, thanks to businesses having the power to get away with higher mark‑ups. According to recent estimates, the gap between prices and production costs widened by 6 per cent over the past two decades.
Competitive pressures have declined in Australia since the early 2000s, and Australians cannot afford for this trend to continue.
The need for change to our competition laws is something that the CEO of the Council of Small Business Organisations Australia Alexi Boyd has noted. In May this year, Ms Boyd said that “Reforming competition policy is crucial to ensure Australia remains a place where small businesses can grow and thrive.”
The Australian Small Business and Family Enterprise Ombudsman, Bruce Billson welcomed the introduction of this legislation. As Mr Billson noted, rebalancing relationships between small and large enterprises has an important role in promoting economic growth. Mr Billson also said that penalties for anti‑competitive behaviour “need to be more meaningful and not just an easily absorbable ‘cost of doing business’”.
Schedule 1 competition
Schedule 1 of the Bill seeks to do just that ‑ increase the maximum penalty available for breaches of competition and consumer law to ensure the price of misconduct is high enough to deter unfair activity, and to ensure consumers retain a robust level of protection.
By strengthening penalties, Australia will be promoting competition and better corporate behaviour. Greater competition means better prices and more choice for Australian households.
Australia’s competition laws have long needed an update. It has been close to 30 years since the maximum penalty for anti‑competitive behaviour was changed. As a result we have fallen behind our international peers.
The Organisation for Economic Co‑operation and Development found, in a 2018 report, that the average and maximum competition penalties in Australia are substantially lower than in comparable jurisdictions. The amendments in Schedule 1 will increase maximum penalties for corporations that engage in anti‑competitive behaviour from $10 million to $50 million and from 10 per cent of annual turnover to 30 per cent of turnover for the period the breach took place. The maximum penalty for individuals who engage in anti‑competitive conduct will increase from $500,000 to $2.5 million. This will bring Australia into line with comparable international jurisdictions and will also ensure that fines have a meaningful deterrent effect.
It has been noted by the Parliamentary Joint Committee on Human Rights that the increase in penalties are substantial enough to warrant considering whether a criminal standard ought to be considered rather than the civil standard of balance of probabilities.
I have great respect for the Parliamentary Joint Committee on Human Rights, ably chaired by the member for Macnamara, and I thank the committee for bringing this issue to the parliament’s attention. However, the Albanese Government believes the use of the civil standard is appropriate and proportionate.
As I have noted, Australia’s fines are presently substantially lower than equivalent jurisdictions. This legislation seeks to ensure that we do not fall behind, and risk these penalties being treated as the cost of doing business. Increases to penalties are necessary for effective deterrence.
The Bill also provides discretion to the courts on how those penalties are enforced. While the maximum penalty is being raised, judges will continue to use their discretion and apply maximum penalties only to appropriate cases.
I appreciate the Parliamentary Joint Committee on Human Rights raising this important point, and am confident that protecting the courts’ right to discretion will ensure all are treated fairly.
Schedule 2 – unfair contract terms
Schedule 2 to the Bill will better protect consumers and small businesses from unfair contract terms by strengthening the existing protections against unfair terms in standard form contracts.
Standard contract terms are a commonly used and cost‑effective option for businesses as they avoid costs associated with negotiated contracts. An unfair contract term is one that’s one‑sided and excessive, that isn’t necessary to protect one party’s interests, but causes detriment to the other party.
Protections were first introduced in 2010 for consumer contracts, and in 2016 for small business contracts, to deal with terms that cause significant imbalance in the parties’ rights and obligations. However, consultation with stakeholders suggested that unfair terms are still prevalent.
While courts presently have the power to void unfair contract terms what has become clear is that it is necessary to introduce strong deterrents.
That’s partly because consumers and small businesses generally lack the bargaining power to effectively review and negotiate the terms when entering into contracts with larger parties. The hallmark of effective legislation is that it has deterrent effect on the behaviour it seeks to regulate. It is unfortunately evident that unfair contract terms remain a huge problem.
What do we mean by an unfair contract term? Let me take the House through some examples.
In one case, the ACCC raised concerns about contracts between farmers and milk processors in the dairy industry. The contracts allowed milk processors to unilaterally change basic supply terms such as the price they paid, without giving farmers the option to terminate the contract.
The contracts also required that farmers comply with lengthy notice periods before terminating the contract, while giving milk processors much greater flexibility to terminate the contract.
In another case, a contract between a potato wholesaler and potato growers included terms that allowed the wholesaler to unilaterally determine or vary the price it paid farmers for potatoes, unilaterally vary other contractual terms, declare potatoes as “wastage” without a mechanism for proper review, and prevent farmers from selling potatoes to alternative purchasers.
In another case, the ACCC noted that chicken growers were being locked into contracts with meat processors that allowed processors to force growers to upgrade their facilities to fit with the needs and preferences of the processors.
The ACCC has also raised concerns about a supplier of serviced office space that was imposing terms on tenants that allowed the supplier to automatically renew contracts unless the customer opted out; unilaterally increase the contract price; and to unilaterally terminate a contract. There was even a contract term that allowed the supplier to keep a customer’s security deposit if a customer failed to request its return.
In another case, the ACCC raised the issue of a company which leases photocopiers, scanners, and printers to thousands of small businesses. Its contracts contained unfair terms such as automatic renewal terms that meant contracts were automatically renewed unless the customer cancelled a certain number of days before the end of the contract; termination payment terms that required customers to pay extensive exit fees when they cancelled their contract; unfair payment terms that required customers to pay for software licensed as part of the agreement even when they had not received the software.
Contract law can be complicated, but the principle is simple: big and powerful firms must stop putting unfair terms into their contracts with consumers and small businesses.
This bill will introduce stronger deterrents by prohibiting the use of, and reliance on, unfair terms in standard form contracts through civil penalty provisions. It will also provide a 12‑month transition period that will allow businesses time to prepare.
The bill will also expand the class of contracts that are covered to ensure a larger number of small business contracts are afforded protection.
The Government’s expectation is that regulators will continue to take a reasonable and proportionate approach to enforcing the protections.
These amendments will ensure consumers and small businesses get a fair go when entering into standard form contracts with larger contract‑issuing parties.
Since at least the days of Adam Smith, economists have recognised the central role of competition in driving growth and productivity. If we are to increase living standards and deliver for consumers, the Australian economy needs a dose of competition reform. By strengthening the deterrents against bad behaviour, we make our economy fairer, more dynamic, and more competitive.
I commend this Bill to the House.