Trade Practices Act; Pharmaceutical Benefits Scheme; Free Trade Agreement; Housing

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June 20, 2004
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June 20, 2004
Response to Productivity Commission Report on Workers’ Compensations and Occupational Health and Safety
June 24, 2004

Trade Practices Act; Pharmaceutical Benefits Scheme; Free Trade Agreement; Housing





Minister for Small Business and Tourism

Joint Press Conference

Parliament House, Canberra

Wednesday, 23 June 2004
12.05 pm


SUBJECTS: Trade Practices Act; Pharmaceutical Benefits Scheme; Free Trade

Agreement; Housing


Today the Government announces major changes to the Trade Practices Act which

will improve the operation of competition law in Australia, will assist small

business in collective negotiation and will increase the potential penalties

for anti-competitive conduct.

These reforms come out of the Review of the Trade Practices Act which was done

by Sir Daryl Dawson. And in response to that Review, the Government has prepared

a Bill which will be introduced into the Parliament tomorrow.

I should say for those of you that are familiar with this, under the Inter

Governmental Agreement, to amend the Trade Practices Act the Commonwealth is

first required to negotiate with the States or give the States time to consider

matters for a period of three months. Then when it produces a Bill it is required

to send it to the States for a vote which takes five weeks. So one of the reasons

why this Bill has been so long in the coming is we have been going through that

consultation period and that voting period. But we have secured the required

votes to introduce that Bill into the Parliament tomorrow.

As you also know, if the Commonwealth wants to appoint a new Chairman of the

ACCC the process is even more cumbersome and takes a long time.

In addition to the Bill, which implements the reform based on the recommendations

of Sir Daryl Dawson, the Government is also announcing today its response to

the Senate Committee Economic References Report on the Effectiveness of the

Trade Practices Act.

Now let me make it clear that, in implementing our response, we would firstly

be required to consult with the States for three months, then prepare a Bill

and then send it out for a voting period. So we have two things occurring here

– one is the Bill which has been through all that process and is ready

to introduce tomorrow – secondly is the response which cannot be introduced

as legislation until such time as all of those formalities have been engaged


In its response to the Senate Joint Committee, the Government substantially

accepts the recommendation of the Minority Senators, that is the Government

Senators, who recommended that in relation to Section 46 matters that could

be considered by the Courts in determining the operation of Section 46 would

include the capacity of a business to price below cost and the expectation that

a business would have of recoupment. These of course are matters that the Courts

can currently consider but we accept the recommendation of the Minority Senate

Report that putting them into the legislation would assist in directing the

Courts attention to those matters without in any way limiting the other matters

that the Courts could take into account.

In addition to that we announce in our response to the Senate Joint Committee

changes to provisions on unconscionable conduct which will extend the application

of those provisions to suppliers or acquisitions up to a value of $10 million.

Now as I said, the response will be tabled in the Parliament today, it will

be on my website, apparently it is some kind of breach of Parliamentary process

if I table it before it is actually put into the Parliament and so it will be

available at 3 pm, the detailed response, once it is tabled in the Parliament

and once it is put on the website.

But this represents a comprehensive response to the Review of the Trade Practices

Act. It gives additional rights to small business, it increases the penalties

for anti-competitive conduct so that the penalties can involve penalties related

to the value that somebody has got from anti-competitive position, that you

can be fined $10 million or three times the value of the benefit of the conduct,

or if that cannot be determined 10 per cent of the turnover.

So it dramatically increases the penalty for anti-competitive conduct and at

the same time empowers small businesses to take further advantage of the unconscionable

conduct provisions. And for the benefits in that regard I pass over to the Minister

for Small Business, Mr Hockey.


Thanks Treasurer.

The Section 46 changes announced by the Treasurer today make predatory pricing

easier to prove, and that is vitally important for Australia’s small businesses.

It clarifies the intent of Section 46 and importantly empowers the Courts to

make real decisions in relation to predatory pricing. They are meaningful and

they are going to have a real impact in the business community.

Secondly the collective bargaining provisions which are being introduced into

Parliament tomorrow are the most significant step forward in legislative terms

for small business in the last thirty years. It allows independent petrol stations

to collectively bargain with the big petrol suppliers. It means that small farmers

can collectively bargain with the big retailers. And they do have powers of

boycott. It is important to recognise that the ramifications of this initiative

are all beneficial to small business and provide them with an equal playing

field to big business for the first time.

Significantly there is a limit of $3 million per annum on individual contracts

and total contracts during the course of a year. What is included in the legislation

to be introduced tomorrow and the Bill is a provision to, by regulation, exempt

certain businesses and provide their own caps. For example, petrol stations

have high turnover and low profit. Their turnover obviously may well exceed

$3 million per annum. For example, if it is an independent petrol station that

is distributing Caltex petroleum their turnover may be $15 million or $30 million

per annum. I will be consulting widely with small business groups to identify

those that are in that position so that the true meaning of the provisions of

collective bargaining are kept to in the form of new regulations.

In my press release I have attached a list of some of the industries that may

well exceed that $3 million limit but remain very much a part of the small business

community. This will enable dairy farmers to negotiate with Co-ops, it enables

smash repairers to negotiate on an equal basis with insurance companies, it

enables small convenience stores to get similar pricing to Woolworths and Coles

when it comes to wholesale produce.

It is the most significant step forward for small business and it is being

introduced into the Parliament tomorrow.

I thank the Treasurer for his work and the Treasury for their work. The amendments

to Section 46 and the collective bargaining provisions take a massive step forward

in addressing the imbalance between small business and larger business.


Right, thank you very much, are there any questions?


How did the states vote on the (inaudible)?


Well, they all voted in favour and you know how I say that, because if you

don’t vote against during the 35 day period your vote is taken as being

in favour. So, I wouldn’t want to mislead you to think that they all affirmatively

voted in favour, but either by voting or by failing to vote, they were taken

to vote in favour.


Who failed to vote?


Well, I won’t go through it, but the provision provides that if you don’t

vote within the 35 day period, you are deemed to be in favour. So, they all

either constructively or actually voted in favour.


Why can’t you, is that information not on the public record?


I don’t think it is…it is just that I can’t tell you as of

this moment.


Treasurer, in terms of the…


It is a very difficult thing herding eight states and territories and I don’t

recall instantaneously their votes on every one of these things. I am much better

in recalling the votes of Members of Parliament in the House of Representatives.


…Treasurer, in terms of the Section 46 changes, isn’t it the case

the Government has been sort of dragged, kicking and screaming into make these

changes after Dawson essentially rejected any changes to Section 46 and only

after Labor has announced some more robust reforms to Section 46?


The Dawson report said that the Government should monitor the outcome of High

Court decisions, a number of which were before the courts, in looking at Section

46. A number of those cases have been decided since then, the Safeway case and

some others, and the Senate Committee have a look at it. Labor’s policy

is based on the Senate majority report, which is in many respects ill-considered

and inappropriate. The Government’s policy is based on the recommendation

of the Government’s Senators which is well thought out and is entirely

consistent with preserving a competitive economy.


Do you think these reforms will give the courts additional legislative muscle

if you like to actually find against big business engaging in predatory conduct

where big business previously has been exonerated if you like, when then courts

have just not been able to find against big business in so many cases, the ACCC

has been sort of metaphorically tearing out its hair for many years (inaudible)?


Well, the law is this: that you can’t misuse market power and you can’t

engage in predatory pricing. We are announcing changes which will add additional

elements that can be considered in order to establish such a case. And properly

considered they will prevent misuse of market power and predatory pricing. That

is why we are introducing them. And the section will be, we believe, a more

robust section as a consequence. Now, the other side of this is you don’t

want to introduce a section that will actually prevent competition, you don’t

want to introduce a section which means that anybody who undercuts somebody

else in the market could have committed an offence…


(inaudible) think of what Labor…


…well, I think…




…Labor’s policies are very ill-considered and inappropriate.


Do you think it would (inaudible) competition?


Well, I think Labor’s policies are ill-considered and inappropriate and

they certainly wouldn’t work in the real word, that is why we notice with

some wryness their recommendations. But what we have done is we have improved

the robustness of the section while providing for competitive outcomes and properly

managing the operation of the free-market system and that is why these are much

better reforms.


Treasurer (inaudible), have you been able to establish what the current savings

will be from the changes to Pharmaceutical Benefits Scheme that Labor says it

will now support?


The measure when it was announced was of the order of a little of $200 million

per year, and as I said in the House yesterday, the full amount of the saving

would not still be available. And the reason for that is that when announced

the then co-payment was $3.60, we were increasing it by $1 to $4.60 and there

is in fact an indexation factor that works on that co-payment so the $3.60 figure

has now gone to $3.80. So the increase to $4.60 is no longer a dollar increase,

it is an 80 cent increase.


Mr Costello, what is your response to Labor’s position on the Free Trade

Agreement today?


Well, if Labor’s position on the Free Trade Agreement today is that they

are supporting the free trade agreement, and that was certainly the recommendation

of JSCOT, which I assume includes the Labor Party members of JSCOT, then I welcome

it. But we don’t want funny business here, we don’t want trickery,

we don’t want a situation where Labor wants to say in the House of Representatives,

they support the Free Trade Agreement but try and delay it or stop it in the

Senate. If the free trade agreement is worth supporting, it is worth supporting

in the House of Representatives and the Senate. If it is worth opposing, it

is worth opposing in the House of Representatives and the Senate. What I don’t

understand is how you could not oppose it in one, and leave yourself the tricky

option of opposing it in the other. So, we say to Mr Latham, no trickery here,

you are either in favour of the Free Trade Agreement or you are not and it is

in Australia’s interests, so support it. It is like Pharmaceutical Benefits.

For 25 months Labor said, this was a bad reform, and yesterday they announce

they are supporting it. And please let’s not have 25 months of indecision

in relation to the Free Trade Agreement. And you know, I notice that some of

the Labor backbenchers are today calling on Mr Latham to review his opposition

to other Government measures and I would urge him to take notice of those Government



Mr Costello the Productivity Commission has rejected, sorry it has changed

its tune on capital gains tax concessions saying that it has in fact fuelled

house prices, why have you rejected their recommendation for a full review of

the tax treatment of housing?


Because this Government cut capital gains tax, we cut it in half for individuals.

It was a much needed reform in Australia and it has been a good reform, we won’t

be reversing it, not for a moment. We won’t be reversing it in relation

to real estate and we won’t be reversing it in relation to equities. And

I think the point that the Productivity Commission made is that the tax treatment

of real estate is not different to the tax treatment in the equity market. The

half capital gains that applies in relation to real property applies in relation

to the equity market. So, I thought that was a very interesting finding that

in fact there is nothing privileged about investment in the real property market,

it is the same treatment as applies in relation to the equity market.


But what it also said Treasurer, is that the current interaction of the various

forms of taxes have lead impetus to investment demand which has created unrealistic

expectations in the property market which has set housing prices and therefore

contributed low housing affordability, and also the suggestion is very inefficient

over-investment in the housing sector. Now, neither of those things are attractive

whether or not housing gets particular treatment compared to shares or not.


Well, I have been saying, I think, for 18 months that house prices would not

continue to rise to the extent that they had, and I can recall mounting a, hopping

into a helicopter on 60 Minutes one night, and flying around property developments

and saying, nobody should expect that the property market is a one way bet.

And what the Productivity Commission found is that this is a market like all

others, and at the point where supply exceeds demand, prices will cease rising.

And I actually think that is what has happened. In fact the Productivity Commission

has found itself that that is what is happening, that prices are slowing in

unit, in some unit developments they are falling. Now, this was very predictable

and as I said, it is welcome that the continued growth did not continue at the

rate that it was, and people will have to factor that into future decisions

and the fact that prices are now coming back actually will improve housing affordability.


It is also suggesting prices might be excessive over the entire housing cycle

under the current tax regime, that is just not going to be either effective

or equitable, is it?


No, I think there will be a correction in the housing market, in fact I think

we are seeing a correction in the housing market.


And you think that will pull all of the investors out of the housing market?


Well, it is. The level of dwelling unit commencements and finances and approvals

is falling. Let me make this point, at the point at which the investment market

is turning down, the most incompetent thing you could possibly do would be to

whack it with new taxes. That is what Mr Egan has done. At the point when it

is turning down, the most incompetent thing you could possibly do would be to

worsen the downturn with a new tax. This Federal Government won’t be doing

that, I can assure you of that. Mr Latham, if he wants to do it, can announce

it. He did have a policy you will recall of abolishing negative gearing for

some 12 hours.


(inaudible), why in your view is collective bargaining desirable for small

businesses in negotiating with big business but perhaps not so desirable for

individual employees in the work place negotiating (inaudible)?


Well, let me make this point, you do have to bear this in mind that with the

proceedings that we have introduced for collective bargaining, you give notice

that you are intending to collectively bargain and unless the ACCC disapproves

of it, you can do it. But the ACCC can disapprove of it, if it believes that

it is anti-competitive. So, you still have got that safeguard in there which

prevents anti-competitive arrangements, the difference is rather than having

to go through an authorisation as you do at the moment, and pay a $7,500 fee

and go through a long authorisation process, you can do it as of right, unless

the ACCC disallows it. So the onus has reversed and made it much easier but

there is still a provision to ensure that it is competitive.


Do you think there will be a greater level of prosecutions against big business,

big firms as a result of these changes or do you think that their behaviour

might change to avoid…


Well, I hope their behaviour, I hope behaviour change. Can I say, what is the

best outcome of a provision in an Act which is designed to prevent the misuse

of market power? The best outcome is that people don’t engage in misuse

of market power. That is the best outcome, or people don’t engage in predatory

pricing, that’s the best outcome. If they do do it, the second best outcome

is that proceedings are taken against them as a warning to them and everybody

else, never try it again. But if I may say so, the best laws are the laws that

change behaviour and therefore don’t require prosecution…


…change behaviour and therefore do not require prosecution and I would

say to anybody who has got any doubt about this in Australia today, if you have

got any doubt about whether or not it is worth while trying to misuse your market

power and get away with predatory pricing, don’t, because if you are found

to have contravened the Act it can be $10 million or it can be three times the

gain or it can be 10 % of your turnover so it is not going to pay.


What about sanctions against corporate office holders?


Well there are offence provisions in the Act already, civil provisions for

people who aid and abet and council and procure and all those sorts of things.

Can I make one point, because it is an important point. The Government is still

consulting on the issue of making a criminal offence of hardcore cartel activity.

Dawson recommended that the Government look at it. Dawson did not, unfortunately,

provide the answer. He said it is very complicated, very difficult to draw and

I recommend that the Government consult and have a inter-departmental committee

to look at it. We are consulting and we are looking at it and at the stage when

we are convinced that an offence, which is fair to everybody can be drawn, we

will be making an announcement in relation to that. That is criminal conduct,

but let me make this entirely clear, the Act currently provides civil penalties

for individuals in relation to those matters.


Will that mean gaol terms?


Yes, gaol terms, imprisonment, if it is criminal it is gaol terms. Now distinguishing

anti-competitive conduct which is civil from anti-competitive conduct which

is criminal is pretty tricky and Darryl Dawson who is a High Court Judge did

not get the answer in relation to that and the Government is still considering

whether or not that can be done.


Will you announce that before the election?


Well if we can we will. Yes. We try and do all of these things as quickly as

we can Steve, you know that. Last question?


What is your attitude to it, though, yourself, Treasurer notwithstanding the



Look, I think if you could make a certain offence, right, which everybody was

quite certain was substantively different to mere civil conduct, if you could

make a certain offence which was quite clearly criminal rather than civil, it

should be done. But you do not want to make an offence which has the reach that

the current civil law does and this is something that better minds than me are

negotiating, whether or not it can be done, so I will wait to see what those

better minds come up with. Thanks very much.