6 March 2008

Reflections on Consumer Policy – A Commonwealth Perspective


Keynote Address to the National Consumer Congress, Perth Convention Centre, Perth

It's a pleasure to be here in Perth to speak at my first National Consumer Congress. This is also the first Congress to take place in Western Australia and the first not to take place in either Sydney or Melbourne. This is a timely reminder of the importance to current policy debates of developing truly national approaches to Australia's consumer policy framework.

I'd like to thank Sheila McHale, Pat Walker, the Department of Consumer and Employment Protection and – particularly - the Congress Secretariat for all of their work in organising this Congress.

As you know, the Australian Government has nominated Pat Walker to be the ACCC's newest Commissioner, specifically responsible for petrol. Pat will bring the benefits of his long and distinguished service as Western Australian Commissioner for Consumer Protection for nearly 10 years to his work in promoting efficient and competitive national fuel markets in Australia.

I'm particularly glad to be here as the first Federal Consumer Affairs Minister since 1998 and the first Competition Policy Minister ever.

The Rudd Government takes both consumer affairs and competition policy seriously.

Labor remains proud of the competition policy reforms that Paul Keating introduced towards the end of his term. Not only because of the benefits they've had for the competitiveness of the Australian economy but also because of the benefits for Australian consumers.

These reforms dismantled monopolies and introduced competition into previously uncompetitive sectors of the economy. And, they improved consumer well-being by fostering competition and increasing business efficiency, which in turn drove product choice and lowered prices for consumers.

Many consumer groups have long called for the Minister for Consumer Affairs to be responsible for competition matters, so I suppose you can say the Rudd Government took the important step of linking the two portfolios before it was sworn in.

The Rudd Government also sees consumer affairs as an important part of the economic policy armoury – ensuring that markets are working competitively and efficiently for the benefit of consumers.

I think it is a plus for consumer affairs matters that I'm also the Assistant Treasurer and member of the Expenditure Review Committee and therefore able to bring more of a consumer focus to our team of economic ministers.

Locating national consumer policy making within Treasury emphasises the wide reach of consumer policy across many policy areas and its place at the heart of Australia's economic policy framework.

Consumer affairs under the new Government

As I move around the country talking to State and Territory Consumer Affairs Ministers and consumer advocacy groups I sense an historic opportunity for us to advance consumer policy reform in this country.

While the challenges and opportunities facing the Australian consumer have evolved quite rapidly over the last decade - it is unfortunate that the consumer policy framework has not managed to keep up.

We are at an important moment in consumer policy in this nation, with the upcoming publication of the Productivity Commission's review of Australia's consumer policy framework. And, the Rudd Government wants to ensure that the reforms flowing from the Commission's review work to improve the wellbeing of Australian consumers and promote well-functioning markets in significant and long-lasting ways.

Ministerial Council on Consumer Affairs

The confluence of a new co-operative approach between the Commonwealth and the States and Territories, a new consumer affairs focus at the Federal level and the work of the Productivity Commission mean we have an historic opportunity for progress and reform. We need to make the most of it.

As we embark with a new emphasis on consumer matters, it's important that we make full use of the range of options available to us – of which regulation is one.

As I have begun to meet with my state and territory colleagues I have suggested informally to them - and will be suggesting more formally to them at our meeting in May - that if the Ministerial Council on Consumer Affairs is to be effective in promoting real reform - and, if we are to avoid difficult reforms going into the never-never or the too hard basket - it's not sustainable that we continue to meet just once a year.

We need to meet formally twice a year to progress reforms and clear any bottlenecks to those reforms that will benefit consumers.

Consumer policy and markets

I want empowered consumers to exercise their preferences, to make confident and informed decisions, and to signal to suppliers what it is that they want. The most effective drivers of competition are not laws and regulations, but consumers making real and effective consumption choices.

In considering the role of government in consumer regulation, I believe that we should not consider that regulation is always the first – or the best – solution. Rather, we need to be aware of the full range of consumer policy tools available to us in addressing problems.

When government goes down the regulation road we need to ensure that the regulation is well focussed and will deal with the mischief we are trying to fix – without creating an undue burden for those businesses which are doing the right thing.

We all know that we are not doing consumers any favours by increasing the administrative and cost burden for business - because this will ultimately be passed on to consumers.

Unnecessary, un-harmonised or unduly complex regulation will also lead to 'fight-back' from business against all regulation – something we all want to avoid.

Let me take component pricing as an example where regulation is necessary. It is a fundamental concept of a well functioning market that consumers should know how much they are going to pay when they make a purchasing decision.

Here is a case where we need to regulate – and we will regulate.

However, I'm very strongly of the view that regulation needs to be carefully crafted to ensure that those businesses - where everybody accepts they are doing the right thing – and those sectors that are not well suited to this type of regulation are not unduly burdened with this type of regulatory load.

I'll be making more statements about the way forward on component pricing in the not too distant future.

This is not to say that regulation should be avoided or undervalued as a consumer policy tool. When setting out the boundaries of acceptable business conduct, legal rules are a powerful and effective means of making the position clear for businesses and for consumers. But, there are a wide range of other policy approaches available to government to achieve better functioning markets. These include a range of tools designed to assist consumers in being more effective – like education, awareness and better information provision – and tools that can encourage improvements in supplier behaviour – such as codes of conduct, standards and accreditation.

Markets can, and sometimes do, fail. Consumers often have to deal with a lack of information, imbalances in bargaining positions and complexity.

Any government regulation should be rational, straightforward, easily complied with and, where possible, generic. Sector-specific regulation should be the exception, and justified only by a need for certain protections that apply in specific circumstances. Otherwise, generic provisions should apply.

Regulatory complexity affects consumers as well as businesses. Consumers, in order to function in modern life, should be able to easily understand their position under the law and what action they can take against businesses who breach the law. This objective is not well-served by sectorally-focussed, complex and duplicative regulation. Similarly, over-regulation of this kind harms businesses by imposing onerous compliance burdens and - by increasing business costs - can reduce competition.

I am also committed to evidence-based policy making. When someone comes to me with a regulatory proposal, I want then to show me how a regulatory change will make markets work better, not just how it will address a perceived problem to the advantage of specific groups.

Commitment to action

In keeping with the priority that we put on consumer affairs, the Rudd Government is committed to making a difference for consumers and wants to make markets work better for their benefit.

With rising interest rates and the challenge of inflation, working families feel more pressures on their ability to meet the costs of living. Inefficient and uncompetitive markets can only add to these pressures, by reducing choice and driving up prices. For this reason, we want to use the full range of existing policy and enforcement tools to ensure that key markets are working well. But also, to think about what regulatory changes we can make.

Empowering the consumer has been at the heart of some of the key announcements the government has made in its first 100 days in office. Whether it is criminalising cartels who de-fraud consumers, or looking at retail price transparency in the petrol market, or instituting a significant inquiry into the grocery industry - the consumer lies at the heart of our policy focus.

Legislative changes

The Government is committed to ending existing practices that work against consumer interests and also to enhancing the ACCC's powers to take effective action against those who seek to exploit or harm consumers.

Cartel Conduct

A good example of the link between consumer affairs and competition policy is the government's determined efforts to crack down on cartel conduct.

I want to take effective action against businesses that defraud Australian consumers and small businesses by engaging in cartel conduct. Cartels are theft.

On the 11th of January I released a draft bill for public comment, which would introduce a new cartel criminal offence.

The bill proposes substantial penalties for breaching of the new offence. For corporations, the maximum fine would be the greater of $10 million, or three times the financial gain obtained by the offending conduct. And, individual CEOs, Directors and Managers who are found to be responsible for cartel conduct would face fines and up to 5 years in gaol.

The threat of a gaol term focuses the mind like no other penalty.

These penalties are substantial — and I've asked for the Australian public's view as to whether they are enough. Offenders ought not to be in a position to write off a penalty for cartel conduct as a mere cost of doing business. There must be an effective deterrent.

Criminalising cartel behaviour will bring Australia into line with the approach taken by its major trading partners, and equivalent economies around the world. The US and Canada impose gaol terms for breaches of their cartel provisions. Similarly, Japan, Korea, the UK and other major European countries all imprison offenders.

Such a necessary, pro-competition and pro-consumer reform has escaped us in Australia. No longer!

The Government is committed to introduce the necessary amendments within 12 months of taking office. And, we will deliver on that commitment.

Several groups represented have made submissions on the draft legislation and I've read them over the last few days. We'll work through those issues and move to legislate once we have reached a conclusion on the best way to improve the draft legislation.

Enforcement initiatives

These legislative initiatives will make a difference to the effectiveness of law enforcement. Some of the biggest issues of concern for consumers are grocery and petrol prices. Accordingly, the Rudd Government is doing everything it can to put downward pressure on petrol and grocery prices to help ease cost of living pressures on working families, together with its five-point plan to win the war on inflation.

Grocery prices

While inflationary pressures are impacting on prices throughout the economy, the Rudd Government wants to ensure working families are getting a fair deal at the supermarket. We want to get to the bottom of what is actually driving up grocery prices and see if more can be done to ensure that consumers have access to a competitive market for basic food items.

This is the reason for the ACCC's investigation into the structure of the grocery industry at the supply, wholesale and retail levels. I have also asked it to look at the nature of competition in the industry and grocery pricing practices.

In doing this, I have asked the ACCC to take a broad approach to this inquiry so that all aspects of the supply chain are looked at – from the farm gate to the checkout.

The ACCC will consult widely with consumer groups, as well as retailers, businesses along the supply chain, farmers, and other interested parties.

As part of its wide-ranging public consultations, the ACCC is asking for submissions by the 11th of March. I encourage you to contribute your views on these important matters. The ACCC will report its findings to the Government by the 31st of July 2008.

Petrol prices

As you know, petrol prices have also been of great concern to consumers. The ACCC's report: Petrol prices and Australian consumers; which I released in December last year, acknowledged the "high level of consumer frustration about price fluctuations and the lack of transparency in prices" and found that there were "fundamental structural issues that raise concerns about current operations and future competitiveness" of the Australian petrol industry.

While the report also confirmed that petrol prices are largely determined by international factors, the new Government is committed to promoting further competition and transparency in the Australian petrol market, and has already acted to address some of the problems that the ACCC identified.

Immediately following the release of the report, we gave the ACCC the power to carry out formal monitoring of petrol prices to ensure motorists are getting a fair go. In order to enforce these new powers, we have – as I mentioned earlier –nominated Pat Walker for the new role of ACCC Petrol Commissioner, thus honouring a key election commitment. As a full-time commissioner, Pat will be responsible for overseeing the ACCC's petrol price monitoring as well as providing an annual report on the ACCC's findings.

The benefits of these additional monitoring powers that the ACCC and the Petrol Commissioner will have at their disposal have already been on display. Following the most recent divergence between the Singapore Mogas 95 benchmark and retail petrol prices, the ACCC Chair Graeme Samuel contacted all of the oil companies asking them to explain their actions and for the first time, used the new monitoring powers. It wasn't long after this exchange that the divergence narrowed to where it should have been.

There should be no doubting the seriousness with which this government takes the issues of competition and transparency in the petrol market.

There is more to do and we continue to explore every avenue to improve competitive outcomes and provide consumers with more information to base their purchasing decisions on.

Bank switching

Banking is another important area for improved consumer outcomes. For many consumers the Australian banking sector seems quite competitive when they enter the market. There are many financial services providers besides the major banks, and thousands of financial products to choose from.

But once consumers are 'locked in' to a product, things can change. Consumers face administrative barriers to switching their accounts, particularly when their mortgage, transaction account, direct debits and credits are all with the same bank.

The Treasurer has made it clear that the government wants to ease the cost burden placed on working families caused by barriers to switching. And we want to let them make choices about their financial services on an informed and educated basis. That's why the Treasurer announced an accounts switching package on the 9th of February.

The package is designed to improve competition by reducing obstacles to switching and allowing consumers to vote with their feet and change their providers when a better offer is available. It is also designed to increase consumer awareness of financial services products and their costs, and how to go about switching if that is what suits them best.

I believe that this will increase competition and enhance the options for consumers in the banking sector. It should put downward pressure on the cost of financial services and make it easier for Australian consumers to compare their bank's product offering and make a change if they want to.

This means that consumers will not be forced to pay high fees to exercise what should be a reasonably straightforward consumption decision.

The Productivity Commission review into Australia's consumer policy framework

In just under 8 weeks, the Australian Government will receive the Productivity Commission's much-awaited final report into Australia's consumer policy framework.

I won't go through the issues that the Commission will cover in its final report, as all of you know them well.

This is the first substantive review of the national consumer policy framework since the early 1980s, when the consumer protection provisions of the Trade Practices Act were overhauled and expanded in scope. It represents a 'generational' opportunity to shape consumer policy. Indeed, the Ministerial Council meeting in May will be an important first step for the Commonwealth and States & Territories to start to consider the Productivity Commission's report and map out the way forward.

Without seeking to pre-empt the Commission's eventual findings I want to achieve a coherent national approach to product safety issues. We need to improve the ability of the system to get dangerous products out of the marketplace. Where Australian consumers are at risk from faulty or dangerous products, Australian governments have a duty to ensure that the potential for harm is reduced as quickly and as efficiently as possible.

Product Safety

The Commonwealth supports the harmonisation and review of the existing mandatory safety standards and bans.

At present there are 117 product ban orders and approximately 60 mandatory standards adopted by the Federal, State and Territory Governments. None of these bans or standards apply across all jurisdictions. The review process will determine which standards and bans should be adopted by all jurisdictions and which standards and bans should be repealed. This is a sensible and essential reform if we are to move forward on product safety.

The meeting of the Ministerial Council in May is a unique opportunity for reform in this area. Reform of the product safety regime has been long talked about and reported on. Two comprehensive Productivity Commission reports have been published on the topic.

The time for talk is over.

Everyone agrees that we need a more sensible approach – business groups, consumer advocacy groups, and those interested in economic efficiency.

In the last few months I've taken the opportunity to meet with most of my state counterparts to discuss potential ways forward to achieve a much greater role for the Commonwealth in product safety measures. I've been very encouraged by the fruitful nature of those discussions.

I do not approach this from an ideological point of view – it simply makes sense that with national producers in a national marketplace that the Commonwealth looks to take a greater role in product safety.

At the same time, there are aspects of product safety enforcement and compliance that the states do very well, and the last thing I want to do is fix aspects of the system that simply are not broken.

I'm confident that we will achieve a sensible, workable model for reform.

I'll be very disappointed if we don't make use of the historic opportunity that has been afforded to us and as I say I've been encouraged by meetings with State and Territory Ministers.


Without being overly political in this forum, I'm very cognisant of the fact that it falls to Labor governments to make real reforms in the field of consumer affairs. Here in Perth, it was a Labor MP - Ruby Hutchinson - who founded the modern Australian consumer movement in 1959.

The great Labor reformers – Lionel Murphy, Syd Einfield, Neville Wran, and Don Dunstan - made consumer affairs a priority.

These reforms were met not only with public acceptance but with public embrace. And conservative governments which succeeded them did not dare overturn these reforms in the main.

I don't for one second put myself in the league of Murphy, Dunstan or Einfield, but I do recognise the tradition in which I serve.

Labor exists to give voice to the voiceless. To empower the powerless.

As the Prime Minister would say, consumer affairs is "core business" for a Labor administration – ensuring consumers are protected against unethical practices, ensuring consumers are given as much information as possible on which to make their decisions and to ensure markets work.

The next couple of years, with a new government interested in reform and a spirit of co-operation between the Commonwealth and the States & Territories is a unique opportunity for reform.

Those of us interested in this area need to work together in a spirit of openness to make it happen. I look forward to working with you to achieve it.

Thank you.