1 July 2015
Speech - #2015003, 2015

Address to CEDA, Melbourne

Check against delivery

Thank you for having me here today. To Professor Ian Harper may I extend my thanks again. I have done it publicly but your insights and perspicacity were highly valued in the review process and thank you.

To Alan, it is always a pleasure to be with Allan Fels. I felt he had more to give. Did you sense that? He was just warming up. It was like building momentum. It is great to be here with you all.

Thank you for the welcome and may I start with the sober advice that I will not be issuing CEDA with a false and misleading representation notification about my remarks today. I know they have pumped it up but I will not be delivering the Government’s response today. That is not due for some months and that will occur after Cabinet has deliberated on my submission later in this year. So look to that being early in the last quarter of this year.

But I am happy to talk about what we are doing with the recommendations and how we are progressing them.

It has been some 22 years since a piece of work of this scale and breadth has been undertaken and I will not go over all the ground that Allan touched upon in terms of history. Suffice to say, we felt it was very timely and quite important to conduct that root and branch review. I had argued for it in the 2010 election and many said it was not necessary. The competition framework was ‘perfectly adequate’ was the term that came back at me.

But we persevered because the tool kit needs to be ‘fit for purpose’. It needs to cope with the contemporary and the emerging economy and we saw some pressures in that regard.

We thought, having known of the many solutions that were being shopped around, it was important to have an objective, sober and evidence based examination of the competition policy laws and institutional tool kit.

That is what we promised. That is what we have done.

The Harper Review has been an extensive process of engagement, of analysis and I think a very thoughtful deliberation on what that ‘fit for purpose’ benchmark might mean in terms of change and reform.

56 recommendations. A gripping read. Put their hands up, who has read it from cover to cover? It is a gripping read. So if you are looking for some rather dense and carefully calibrated languages it is a gripping read. I would commend it to you all. I have many copies in my office. Perfect Christmas gift for anybody that would want one.

I am not going to give you a recommendation via recommendation response, but happy to respond to any questions you have in the segment that follows.

Needless to say, the Harper Review and its recommendations are very significant.

We place them in the context of the strategic priorities we have for our economy. It sits sensibly amongst other microeconomic reform work we are doing. It sits as a complement to our efforts to energise enterprise, to encourage innovation and responsiveness and the efficient use of resources in our economy.

We value choice and diversity. We value responsiveness in government services. We know our population is ageing and we need to innovate and find new ways of delighting our clients and our customers to meet that growing demand.

And above all we want an economic ecosystem that supports efficient businesses, big and small, to have the opportunity to thrive and prosper.

That was the frame through which we see this work and this is how we will evaluate the recommendations.

As I mentioned, anticipate a formal response in the early part of the last quarter of this year.

Because it is not something we can do on our own, this is an area of co-regulation.

I do not have my hands on the ball exclusively, we need to collaborate and consult with our States and Territories, we need to take them on the journey, as Hilmer did. It did take some time, but it recognised that this cuts across Commonwealth, State and Territory boundaries and we need to find a common pathway and implement it together.

In fact, it could be argued some of the most significant and challenging recommendations that Ian has given us are in the areas of greatest joint responsibility. Where working on our own we will not be able to bring about the ambition that sits behind those recommendations, nor deliver the outcomes that the Australian public would require.

We have also had to consult closely with our state and territory counterparts to establish what their reform appetite is. What their ambitions may be and how we might go about implementing in a collaborative and staged way, a thoughtful response.

My work has been listening to that input, working with the business community, stakeholders, service providers in the government and non-government sector, continuing the consultation now that we have the final Harper report and its recommendations.

We have to do this collaboratively.

There is no other way of going about the implementation and that is why from the very outset, even in the formulation of the terms of reference, working in partnership with the states and territories has been our approach.

Why do we need to do this? Our economy is in transition. The mining construction boom is largely over and we are moving to more broad-based investment. We see declining terms of trade and we have to prepare for the needs of not only an ageing population, but a hotly contested international environment for commerce, that both offers delicious new possibilities, but fierce competition to land those possibilities in nations and in businesses.

The mining investment is about $40 billion off its peak This needs to be dealt with. Our terms of trade having peaked in 2011 has fallen by over 12 per cent in 2014-15 and we anticipate a further 8 1/2 per cent reduction in the coming financial year.

Population wise, in the 1970s seven people in the workforce for every retiree. Today, the ratio is about five to one. But looking forward to the middle of the century, which frankly, is not that far away, that ratio goes to under three, 2.7 people in the workforce for each retiree. We have got baby boomers turning 65, by 2054-55, the number of people aged between 65 and 84 will increase substantially.

All of these trends and challenges mean we have to be able to make our economy hum. It is as simple as that.

The great promise of our country is that the next generation has it better than we have had it. That has been built on building national income by 2.3 per cent year-on-year. Those trajectories captured in the Intergenerational Report, the demographic challenge, the slowdown in productivity improvement, our ambition to sustain and improve our quality of life all require us to have the economy producing wealth and opportunity and incomes in a way we have not seen before.

How do we do that? I could run through a list of issues in our economic action strategy about innovation, about the small business and jobs package, about the red tape reductions but I will not trouble you with you with that for too long. Suffice to say, embedded in that is competition policy.

It represents a key lever over which we have influence to make our efforts, to see the economy hum and achieve its full potential more likely rather than less likely. It sits alongside monetary, fiscal and taxation policy as one of the key levers in getting the policy and regulatory environment right so that together we can achieve our nation's ambitions.

We have seen it before. We saw it with Hilmer. We saw the changes in, particularly government-owned businesses and the like add 2.5 per cent of Australia's GDP. Now, that is terrific, but it would be foolish to think there is simply a rerun of Hilmer or some call-up of an encore that would deliver the same results again.

A fresh examination was required. There are not any obvious low hanging fruit examples. I would say some believe there are, I think they are getting low hanging fruit confused with Christmas baubles. They are enchanting and captivating but they are at the end relatively empty in terms of what will be an economically transformational change.

What is going on though, and what we do need to deal with, is technology and the Harper panel dealt with that. What we do need to recognise is growth will largely depend on us taking advantage of those North Asian trade agreements. But those opportunities are not reserved for us, we need to contest and win them. Trading trends are changing, consumers are accessing what they want, when they want it, at prices they choose for value propositions they largely define for themselves.

This is the changing economy, the more competitive global marketplace, this is what our toolkit needs to be able to cope with. And that is what we sought to bring to the terms of reference in the Harper Review and that is what Ian and his team have delivered.

But what we do about it now? We have to liaise with the States and Territories. We have to know what the reform appetite and ambitions may be. We cannot, through our own force or facilitation, or even finance alone, implement that agenda unless there is a preparedness to partner with us.

I am pleased that the States and Territories have engaged constructively but I would not expect that our Government would be interested in involving itself in areas of clear state sovereignty and responsibility. Nor do I think the Commonwealth would seek to pay for reforms that are self-evidently virtuous or already actioned elsewhere across the Federation.

It is also worth remembering that competition payments in the past sought to compensate states and territories for lost revenue when so-called dividends from government business enterprises were replaced by company taxes paid by newly put privatised corporations. That context is important and that is also framing our deliberations.

We are very keen to hear about the potential benefits and we are getting a lot of feedback, in fact, the whole process has been terribly engaging. From the hundreds of submissions we received to the initial discussion paper through to the some 600 submissions received in response to the draft report, and might I share with you many more than we have received since the review panel's final report and recommendations have been received.

I particularly want to thank all of you that have been a part of that. You have added field evidence, insight and wisdom to this challenging task. I also want to thank the Law Council, notwithstanding the fact that the Law Council’s various divisions could not agree with themselves, underlining the complexity of this. They have very collaboratively engaged with Treasury, myself and other stakeholders in discussing the way in which the competition law recommendations may be operationalised and that has been a very valued process.

We also need to recognise though that some of the most important and long referenced reform recommendations are not even areas that we can influence. They are states and territories alone, under the Constitution for them to address and to deal with.

We have sought to establish what might happen, whether the states and territories could be assisted in some way. Whether there is learnings from particular jurisdictions that we might help to populate across the Commonwealth. We have sought to see whether COAG could play a role.

These are the discussions we are engaged in right now. How do we take the recommendations, value and assess their contribution to economic well-being and our future potential and then implement a surefooted action plan that will bring about change?

We know from Hilmer this took a while, the benefits were sometimes a decade plus after the reforms were implemented, but we need to find a constituency for those reforms, particularly amongst of the state and territory governments, with the reforms themselves land squarely in their court.

We have got our role to play though, and I suppose the states and territories are saying to me, will the Commonwealth show leadership in this space? I think we can, I think we can but it will hopefully set the momentum and not represent the total response to the Harper Review.

We have already started. We have delivered substantial reforms to support domestic and international competition. I mentioned the free trade agreements with China, Japan and Korea earlier. The Deputy Prime Minister has already announced the Government's plan for coastal shipping to be implemented as soon as practicable following the passage of legislation that is currently in the Parliament. We want to build a more efficient and competitive shipping industry while reducing red tape for business.

We have had a look at pharmacies and in the sixth community pharmacy agreement the Government and pharmacy sector have agreed to a review into the pharmacy remuneration and regulation framework, including location restrictions. Location restrictions currently are the policy response to ensuring a dependable distribution network for subsidised pharmaceuticals.

We want to test that logic. Is it the most appropriate, cost-effective and efficient way of achieving a within 24 hour delivery of PBS products? That work will be concluded by March 2017.

We have also started work on the personal importation of new motor vehicles. In the panel's report it recommended parallel restrictions on second-hand cars should be removed. Now this is not something at the moment we have indicated a preparedness to do, for vehicle safety and consumer protection areas.

And competition policy, more generally, the Harper panel pointed to how better regulation could help us remove barriers to entry. This is part of that regulatory framework and the test of whether it is fit for purpose. Does it impede needlessly the benefits of digital disruption or does it force upon consumers old business models where consumers are simply working around them.

A review of intellectual property also has merit, which is those laws were canvassed in the Harper panel. Helping to ensure we have got the balance right between creating incentives for innovation and providing individuals and businesses timely access to ideas, products and knowledge.

The PC has told us that the size of the IP related industry could be as high as 10 per cent of GDP for copyright-related activities. So again, a really significant area, something that the panel has focused on.

Books, we keep coming back to books, doesn't everyone have a good book? And the good thing is the Harper Review panel’s book was published here. Is that not fantastic? It is a good read, but there are some questions to be asked about whether change will deliver benefits that outweigh costs that currently affect the policy settings. There are provisions in place for the timely availability of books and I must say I get little traffic, little traffic at all about recreational books but I get plenty of traffic, plenty of comments about academic and educational texts from students and book retailers alike.

But I am also told by Australian publishers who claim local academic texts are cheaper than in the United States. We will just have to work through that because these are familiar debates that many of you have heard before.

On the succulent and juicy topic of the black letter law. You ask sir, why they are so dense? I was going to ask you that. What I do know in our economy is we have a penchant for detailed black letter law of a specificity not matched by any jurisdiction in the world. One of the challenges that I laid down for the Harper Review panel is a principles-based framework more suitable, more agile, more adaptable. That was examined and found to be one that would create a higher level of uncertainty at a time when uncertainty seems to be the popular cry from those opposing change.

The Sherman Act is a ripper, it is a great couple of lines summarised as a spy to be a monopolist but do not ever behave like one. That has evolved over decades and decades of interpretation, not just from actions instigated by the regulator, again another interesting characteristic in our jurisdiction, but through parties seeking to protect their interests and to seek redress to harm caused by monopolistic conduct.

It has evolved and adapted to the changing commercial environment. That has not been our path, our path has been to look to our nation's parliament to assume legislators of such wisdom and policy perspicacity, that we can identify any kind of potential anti-competitive mischief and then codify it within an inch of its life within our statutes and that has been our story. That has been our story.

We are working from that base to improve the laws and it is my view, my firm view that what is recommended is a step in the right direction. It is in step with the economies of today and what is emerging. In a world where markets and consumer preferences are constantly evolving we need modern, clear and effective competition laws to make markets work better.

There is a strong case for reform here that has been my mapped out in the Harper report and captured in its recommendations. For example, the panel formed the view that the current misuse of power provisions in our competition law is not fit for purpose. The review panel recommends it be reframed to focus on protecting the competitive process and suggests additional legislative guidance to avoid discouraging procompetitive activities.

The ACCC chair Rod Sims recently said that presently there are many misguided views on what section 46 is meant to achieve and if Harper's recommendations, if implemented would provide clarity on the provisions. For example, when a major business opens in a new geographic area, existing shops may be substantially damaged. But in itself, this behaviour is not against the current law. In fact, it may be enhancing the competitive process and that is an appropriate recognition.

But to go further and to embrace what Harper has recommended, the focus on conduct with a purpose or effect of substantially lessening competition is in line with many other provisions in our competition laws. I am advised that the Harper section 46 reframing would likely capture a range of anti-competitive and economically harmful conduct that would be outside the reach of the current provisions.

Commercial tactics of corporations with a substantial degree of market power, including locking up limited supplies of key inputs, land banking, freezing out competing suppliers from retail display and demonstration opportunities.  Retailers insisting on joint marketing fees, retaliatory threats in one market to block a new entrant into another, or targeted geographic price discounting strategies by an incumbent, designed to dissuade new entrants into a region. All have the real potential to harm the competitive process but would be unlikely to breach the current misuse of market power provisions.

The case for change has been made by Harper and the panels reframing embraces known competition law concepts. Ensuring no unintended consequences involves great care, and has been the focus of my consultations and the legal fraternity's collaborations.

Harper’s reframing of section 46 would also align us with other major jurisdictions and provide for the ACCC to authorise conduct that is genuinely in the public interest. The panels also recommended changes to streamline the way merger clearance and authorisation processes work within the ACCC, where the Commission is the first instance decision maker with scope for the Commission to consider a public interest.

The merit review process would be through the Competition Tribunal, with the tribunal considering material substantially placed before the Commission or able to call forward additional material operating within time limits.

Harper proposes extending the application of the Competition and Consumer Act to government activities more broadly that impact on the market beyond the current focus of enterprise activity engaged in trade or commerce.

Now I am working through what it would mean in practice in light of our ambition for the Commonwealth and its agencies to behave as model businesses, and I know that is exactly what the states and territories are doing at the present time.

The ambition of Harper to simplify prohibitions on cartel conduct and to better delineate near cartel conduct is welcome, but when criminal sanctions arrives, statutory provisions warrant a greater degree of precision.

Broadening the current joint venture exception must not result in an opportunistic faux-JV shield where no meaningful, durable or embedded enterprise co-dependency could nobble the law.

As mentioned, the joint Treasury and Law Council workshop held in May provided some very useful and practical insights from practitioners about these changes.

Competition can bring great benefits to all sectors of the community and the economy and our laws cannot act as a blocker in ensuring these benefits are realised.

In the area of small business, one close to my heart, a number of recommendations have been made aimed at ensuring that a small business can compete based on economic merit, not have its contest determined by financial muscle. This includes a more flexible collective-bargaining regime and changes to ensure small businesses are not disadvantaged by the commercial activities of governments, for example, through updating competitive neutrality policies.

It also recommends, and it is something we all need to turn our mind to, better access to remedies. When disputes occur without actually proposing model and I thanked Ian for that, he recognised the problem but did not propose a solution, thank you for leaving me much work to do in that space Professor.

Court determined remedies alone can be a barrier for less resourced litigants facing delays or the risk of getting caught in the COG, and for those who were at the Law Council function, you know that the COG is the cost order gorilla, where an early resolution would enable businesses to get back to business, we need to do more work in this place.

Finally, to map forward, we have to know what the states and territory governments can and are prepared to contribute to the implementation of broad and lasting reform in this area of policy. We know that the states and territories have been a valued partner in improving our competitive landscape for some decades.

We have seen benefits like the interconnected national electricity market in eastern and southern Australia, such as consumers now can choose their supplier. The reforms today, some inroads in reforming road transport pricing and water, but there is more to be done to make economy hum. Harper provides a roadmap for how we can work together to further reinvigorate competition policy.

I could talk more about road pricing, I love it, and perhaps many do not, but there are some great opportunities there that can be incrementally pursued and there is some work in progress as we currently speak.

Land-use, planning and zoning is another area which could really substantially boost our nation's productivity and there is some work being done in New South Wales and Victoria in that regard that we can share and learn and draw from into the future.

There will be further consultation on any legislative changes that are developed as a result of the Government's response. I hope I've given you a feel for the broad direction and the timing of our formalised response. If properly implemented, I am confident these reforms arising from Professor Harper and his panel's review can provide the Australian economy lasting benefits the decades to come delivering new economic vitality, higher rates of growth, higher incomes for our citizens and durable benefits for consumers.

I think that is a worthwhile ambition.

I am up for that task.