10 April 2024

Address to the Bannerman Competition Lecture, Sydney


Merger reform for a more competitive economy

Thanks Pamela and Gina for the introductions and to the ACCC and Law Council for the invitation to speak here on Gadigal country, I pay my respects to elders, customs and traditions.

I also acknowledge my colleague, Andrew Leigh, who brings a lot of intellectual heft and horsepower to all the work we do together on competition policy, primarily but not exclusively through his thinking about non‑compete clauses.

He gave a thoughtful speech last week about non‑competes, but I figure a group as informed as this knows that already.

To the Bannerman family, lovely to meet you earlier, and thank you for being here as we pay tribute to Ron.

I’m told he was very anxious about his appointment as the first and only Commissioner of Trade Practices.

Which is hard to imagine now, given he went on to build the very foundations of competition law by helping to establish a consensus that our markets should be competitive markets.

You can see how this survives him, in today’s ACCC.

Here I acknowledge Gina’s remarkable leadership.

Hers was a wonderful appointment that I can take no credit for!

It means Gina now follows Ron Bannerman, Bob McComas, Bob Baxt, Allan Fels, Graeme Samuel and Rod Sims in one of the most important jobs in our economy.

Among the many things I’m grateful to her for are her efforts to get mergers on the national agenda.

This helped ensure I can announce today the reforms which will make the merger regime faster, stronger and simpler as part of a new wave of competition policy to modernise our economy.

I want to thank her and everyone who helped us take a balanced, consultative, methodical approach to this, to get it right.

We are all believers here in competition, and competition policy.

Competition is a defining feature of our culture and we want to make it a more central, defining feature of our economy as well.

You know why, because:

Competition means more and higher quality choices for consumers, at fairer prices;

Competition supports full employment and means workers are more likely to earn higher wages, which lifts living standards;

And competition makes our businesses more dynamic, more innovative and more productive and expands our economy.

These are our goals.

And today I want to tell you about the next steps we are taking and why, and how this fifth wave of competition policy fits into a much broader and more ambitious suite of economic reforms.

The first 4 waves of reform

First some familiar history.

So far, there have been 4 major waves of competition reform across the last 5 decades.

The first came precisely 50 years ago, with Lionel Murphy’s Trade Practices Act of 1974.

This followed the ‘toe in the water’ legislation – Ron’s words – which was the earlier Trade Practices Act, of 1965.

The Act helped transform the Australian economy, shifting the emphasis from protecting ingrained profits to promoting competition.

It prevented anti‑competitive behaviour, made firms accountable for price‑fixing, collusion and false advertising.

And it banned anti‑competitive mergers.

The Trade Practices Act and the Trade Practices Commission it established are the foundations on which modern competition policy and regulation has been built.

The second came 2 decades later, with the Hilmer Inquiry into National Competition Policy in 1993.

The Hilmer reforms came at a time of massive economic transformation that saw the global economy becoming increasingly interconnected.

The Hilmer reforms were conceived and implemented by Labor and helped underpin the 3 decades of continuous economic growth which followed.

The Productivity Commission attributes a 2.5 per cent lift in our GDP to the Hilmer reforms – which boosted household incomes by around $5,000 per person in today’s dollars.

The third wave came through work Chris Bowen and Craig Emerson did as competition ministers.

Craig introduced legislation to deal with creeping acquisitions to limit the market power of major supermarkets.

This legislation empowered the ACCC to review acquisitions of greenfield sites and reject acquisitions that would reduce competition.

He oversaw legislation that created the Australian Consumer Law – unifying 17 different national, state and territory laws.

And passed an important law introduced by Chris Bowen criminalising serious cartel conduct, to better protect small businesses and consumers.

The fourth set of changes followed the Harper Review, from 2014 to 2017.

It led to competition reforms that brought changes to cartel operations, broadened the misuse of market power prohibition, and introduced concerted practices provisions that changed the ways businesses communicate with competitors in a market.

But core recommendations that would have led to a reinvigoration of National Competition Policy were never really implemented.

This was a lost opportunity we are determined not to repeat.

Because we know how important the earlier waves of reform were to our prospects and prosperity.

And we also know competition policy should evolve as our economy evolves, and respond to the new players, new markets, and new disruptions so that it continues to drive dynamism.

Economic case

But Australia’s competitiveness has been declining since the 2000s.

We see this in increasing market concentration across industries, and in how price composition has changed.

Growth in total market concentration – measured by the market share of the top four businesses in industry sectors – has nearly doubled, from 1.7 per cent in 2010 to almost 3 per cent in 2020, according to the e61 Institute.

Around one third of industries, including mining, utilities and retail trade, saw increased concentration of more than 5 per cent, more than offsetting the quarter of industries which saw a decrease.

And the rate of entry of new companies is falling, as the average age of businesses rise.

Over recent decades, the mark‑ups that businesses apply to goods and services have increased by more than 2 percentage points.

Reforms that address the decline in competition can deliver big economic benefits.

Recent analysis by Treasury and the RBA found that even just returning competition to levels Australia experienced in the early 2000s would lift GDP between one and 3 per cent.

Competition policy is a growth strategy.

Because competition moves capital to new growth opportunities in the economy.

It helps wages grow as workers move to better opportunities and businesses, raising living standards as well as productivity.

And for consumers, competition provides more choice, better quality and cheaper prices.

The economic imperative for competition reform could not be clearer.

Daniel Mulino’s House Economics Committee, in the competition report released last month, reinforced the point that competition and dynamism are pivotal drivers of productivity.

It’s clear we need more competition, not less, if we want more competitive and dynamic businesses.

And modern competition policy is central to how we get there.

Competition is about leveling the playing field so that businesses create the most value and don't face unfair barriers to growth.

The emerging barriers to competition are different today and call for new solutions.

Across digital marketplaces and new product categories, we’ve seen new ‘winner takes all’ market dynamics and new barriers to consumer choice.

So the next wave of competition needs to come from understanding new anti‑competitive dynamics and delivering targeted reforms to address them.

Last year the Intergenerational Report laid out the big shifts we face.

Our economy is becoming more services‑oriented, more digital and shaped by fragmentation of the global economy.

We need to ensure competitive forces promote cleaner, cheaper, and more reliable energy – and empower consumers as the historic energy transformation gathers pace.

That digital markets expand choice, rather than limit it.

And that care services improve affordability and increase quality, especially for the most vulnerable.

If we don’t, the transitions occurring in our economy will be more costly, much slower and less fair.

Getting competition policy right can help make economic change fairer, smoother and more prosperous – which is key to building a more modern economy.

It will encourage greater innovation, agility and world class business practises that mean we can maximise not just manage the big shifts coming at us.

Reforms underway

Our government already has a lot of competition reform on the go.

This week Craig Emerson released his interim report on the Food and Grocery Code, with a number of important recommendations including that we make it mandatory.

We’ve empowered the ACCC to undertake valuable work on supermarkets, aviation, childcare and retail deposits.

We know there are a range of views on addressing supermarket dynamics.

We want a more competitive sector that delivers a fair go for farmers and families.

So we asked the ACCC to focus on how we make that sector work better for customers and suppliers.

As Gina and others have made clear, this evidence‑based work, combined with a focus on strengthening the Food and Grocery Code and our merger laws are the priority here.

But these are not the only reforms we are progressing.

Last year our government and all states and territories agreed to revitalise National Competition Policy.

Treasurers will seek to agree new competition principles by the end of the year.

Andrew and I also established the Competition Taskforce, and this is progressing some welcome work on new frontiers, including the better use of data.

The idea to abolish almost 500 nuisance tariffs was worked up by the Taskforce, building on Productivity Commission work.

This is the biggest unilateral tariff reform in two decades, to reduce compliance costs for businesses and boost productivity.

The work on non‑compete clauses is being done there too.

Around one in 5 Australian workers are subject to these clauses, including in non‑executive roles such as childcare workers, medical specialists, even yoga instructors.

These clauses can reduce job mobility and wages growth.

That’s why Andrew with my support and encouragement is examining their impact on dynamism and competition.

We’re also boosting competition in the financial system by modernising payments, clearing and settlement services and the ASX.

And through our financial sector regulatory initiatives grid to make it simpler for smaller banks to comply and compete.

All of these pro‑competition efforts demonstrate our commitment to a strong economy that benefits businesses, industry and consumers.

And merger reform is the next and arguably most important new step in this direction.

Why mergers matter

Most mergers aren’t bad – they’re an important feature of any healthy, open economy.

But market concentration has trended up across advanced economies since the early 1980s, especially among publicly listed companies.

New analysis by the Competition Taskforce shows that merger activity by large firms has increased in Australia over the last decade.

Key to capturing the benefits of this trend is being able to differentiate between harmful and beneficial mergers.

Most mergers have genuine economic benefits.

They attract capital, re‑tool businesses and improve the uptake of new technologies.

This is particularly important in parts of the economy undergoing structural change.

They allow businesses to achieve greater economies of scale and scope, to access new resources, technology and expertise.

This flows through to consumers through greater product choice and quality as well as lower prices.

But some mergers can cause serious economic harm.

This happens when players are not interested in improving profitability by lifting productivity.

When they’re solely focused on squeezing out competitors to capture a larger percentage of the market.

This can strangle innovation, reduce productivity in our economy and punish consumers with reduced choice.

The Competition Taskforce has spent a lot of its time hearing about and thinking about these issues.

From that it’s clear Australia’s approach to mergers is no longer fit for purpose.

Australia is one of only 3 OECD countries that doesn’t require compulsory notification of mergers.

Right now, merging businesses do not have to notify the ACCC or wait for the ACCC’s view before completing a merger.

Our voluntary system means the ACCC isn’t properly equipped to detect and act against anti‑competitive mergers.

It has limited visibility of merger activity and doesn’t always see the ones that present the greatest risks to competition.

Last year, over 1,400 mergers were recorded, at a value of around $300 billion.

And the ACCC looked at an average of 330 mergers a year over the past decade – around a quarter of the total.

But we don’t know whether these are the right 330, or the mergers with the greatest potential to cause harm.

When the ACCC does assess mergers, the current approach is not transparent for businesses or the community.

And clearance can be too slow and cause expensive delays for some businesses as they wait.

Having three current paths to merger approval is inefficient and can mean some businesses game the system to effectively avoid proper assessment.

And certain kinds of acquisitions – serial acquisitions by large firms and acquisitions that entrench the power of market leaders – are not adequately captured by our competition laws.

The changes I announce today are the biggest reforms to merger settings in almost 50 years.

They mean the ACCC will more efficiently and effectively target mergers that are anti‑competitive while allowing mergers that are pro‑competitive to proceed faster.

This will bring our merger settings into the twenty first century.

These changes are the product of detailed discussions, led by the Competition Taskforce, overseen by an Expert Advisory Panel, comprising Kerry Schott, David Gonski, John Asker, Sharon Henrick, John Fingleton, Danielle Wood and Rod Sims.

In consulting with industry and the ACCC a wide range of views were expressed.

The Business Council of Australia started from a position that only very limited change was required.

And the ACCC started the process advocating for changes that some in the business community found excessive.

I'm genuinely grateful for the way views evolved and coalesced the more we consulted.

We won’t be changing the ACCC’s test to ‘reverse the onus of proof’, a change some in the business community opposed.

But we will adopt a mandatory notification system and streamline appeal mechanisms – changes that some businesses originally opposed.

The result of that consultative work means the package we announce today has attracted broad support.

We’re really pleased and grateful for that, and we will seek the same common ground as we implement the reforms.

New merger reforms

The system that will be created will help deliver what we all want, a stronger, more competitive and more productive economy.

That’s because the new reforms will make our merger approval regime faster, stronger, simpler, more targeted and more transparent.

It will be faster because most will now be approved within 30 working days, where the ACCC is satisfied a merger poses no threat to competition.

It will be stronger, because we are legislating a mandatory notification system and empowering the ACCC as the single decision maker on all mergers.

Mergers above monetary thresholds and which would significantly change market concentration will need to be notified to the ACCC and be approved before proceeding.

These thresholds will be based on international practice and set through consultation.

It will be simpler, because we are reducing three streams to a single, streamlined path to approval that removes duplication and standardises notification requirements for all mergers.

It will be more targeted, because mergers that create, strengthen or entrench substantial market power will be identified and stopped while those consistent with our national economic interest will be fast tracked.

Finally, the merger regime will be more transparent, by ensuring the ACCC has better visibility of merger activity.

And we are creating a public register of all mergers and acquisitions notified to the ACCC to promote this transparency and accountability.

Reviews of ACCC decisions will be the responsibility of the Competition Tribunal made up of a Federal Court judge, an economist and a business leader.

These changes will make it easier for the majority of mergers to be approved quickly, so the ACCC can focus on the minority that give rise to competition concerns.

We will consult as we finalise the details in advance of the new system beginning from 1 January 2026.

Resourcing and refocusing the ACCC

That’s plenty of time, because we recognise these changes require a significant shift in the way the ACCC does business.

Cost recovery fees will be introduced so the ACCC is sustainably resourced to meet the timelines, expectations and requirements we are establishing.

Fees will be scaled to reflect complexity and risk, with higher risk mergers facing higher fees.

Treasury expects fees to be between $50,000 to $100,000 for most mergers but small businesses will be exempt.

Along with additional resourcing, the implementation of the new regime will require a new set of skills at the ACCC.

The more comprehensive examination of mergers that a mandatory system creates will provide the ACCC with more evidence to build the case for and against proposed mergers.

We want to back in this increasing economic focus with additional economic expertise.

Merger experts have always been a feature at the ACCC.

But to bolster this expertise, we’re proposing the appointment of Dr Philip Williams AM.

Dr Williams, a former Professor of Law and Economics at the University of Melbourne, has extensive experience analysing and explaining the economic impact of mergers.

I have written to the states and territories recommending Dr William’s appointment as a Commissioner from 27 June 2024.

Today we are also releasing the updated ACCC Statement of Expectations.

It reflects the government’s priority areas – an ambitious competition agenda and a big focus on the cost of living.

Our predecessors didn’t issue one Statement of Expectations to the ACCC at a time.

Different ministers set out their own, uncoordinated expectations reflecting different interests in ACCC activities.

The document we release today outlines the whole government’s expectations for consumer matters, competition enforcement, and telecommunications sector oversight.

To set out clearly what we expect of this high‑quality institution, led by its high‑quality Chair.

Competition policy and economic reform

The merger reform I’m announcing today sits neatly within a broader, ambitious economic reform agenda.

We are:

Reforming our markets and financial system, across payments, financial market infrastructure and crypto.

Reforming the taxation of multinationals, super and the gas industry and cutting taxes for workers and small businesses.

Reforming disclosure laws for climate change and net zero.

Reforming superannuation and the way capital flows in our economy.

Reforming our skills, industrial and energy bases.

Reforming environmental approvals and regulatory processes making it easier for businesses to operate.

Reforming our investment strategy to better attract and absorb capital.

Reforming and renewing our institutions like the RBA and the Productivity Commission.

Reforming our policy foundations, releasing the Intergenerational Report, the wellbeing framework, and the first Employment White Paper in 30 years.

And as we’ve shown today, we are reforming our competition settings to make our economy more dynamic.

By making the merger regime stronger, simpler, faster and more targeted and transparent;

We expand choices, lift living standards and grow our economy;

To ensure our people, businesses and industries are beneficiaries of the opportunities before us in the defining decade ahead.