Interview - Patricia Karvelas, ABC RN

PATRICIA KARVELAS, HOST: Australia is in the middle of a big competition debate. Why is that important? Because a lack of competition in the economy is helping to drive up prices in all areas – from supermarkets to banking to energy to our domestic and overseas flights, according to many experts. The Government says it wants to overhaul competition laws, and the person tasked with doing that and devising a strategy is the Assistant Minister for Competition and Treasury, Andrew Leigh so we’ve invited him on the program.

Andrew Leigh, welcome.

ASSISTANT MINISTER FOR CHARITIES, COMPETITION, TREASURY, AND EMPLOYMENT ANDREW LEIGH: Thanks, Patricia. Great to be with you and your listeners.

KARVELAS: Let’s start with the supermarkets, where I think most people are very – very focused at the moment given they go to the supermarket and, you know, come back with very few items for a big price tag. There are several inquiries looking into them right now. What do you think has gone wrong?

LEIGH: Well, we’ve got a highly concentrated supermarket sector, much more concentrated than, say, Britain or the United States. One of the standard rules of economics is when you’ve got too few players you tend to have prices that are too high. One of the challenges in the past has been the heavy squeezing of suppliers, and most of the focus in supermarket policy has been on the prices that suppliers receive through the Food and Grocery Code of Conduct.

Increasingly now though we’re also looking at the impact on consumers. And that’s why the Treasurer has asked the Australian Competition and Consumer Commission for a report on supermarket pricing. We’ll have an interim report by the end of August.

And we’ve also asked CHOICE to engage in quarterly price monitoring so people can see where the best prices are being provided and save money on their weekly shop. Those CHOICE reports will be coming out in the coming months.

KARVELAS: Okay. You mentioned this big concentration. In the last hour we spoke with Graeme Samuel, former ACCC boss. He says we’ve got 27 million people spread out in this country and, in fact, you know, contested this idea that it’s an issue of concentration. Do you disagree with him?

LEIGH: Well, certainly the rule about concentration applies across a range of sectors and I worry, Patricia, that Australia’s market concentration has increased over recent decades. We’ve got evidence now from very good microdata – which wasn’t available a few years back – that market concentration has gone up, that markups have increased – that is the gap between costs and prices – and there’s less job switching than there was in the past, which is a problem because switching jobs is one of best ways people boost their wages. All of that points to a less dynamic economy and maybe one of the reasons why we’ve just had the lousiest decade of productivity growth in the post-war era.

KARVELAS: Okay. Competition is your remit. You talk about all these inquiries. Some people have said this is just kicking the can down the road. What can you do as a government immediately to address this issue? Because right now people are going to the checkout and they’re finding it very hard to buy essentials.

LEIGH: Well, the CHOICE reports will be coming out immediately, and that’s an immediate response to provide information to consumers. We know that those CHOICE reports have been well used by CHOICE subscribers, but the problem is they’ve only been conducted every couple of years and they’ve been only available to the small share of the population that are CHOICE members. Now they’ll be available to everyone, and that will allow you to work out where the best basket buys are.

We’re seeing a lot of split shopping – a lot more shoppers now are doing part of their shop at one store and part at another and I think that’s a marker of the pressure that many households, Australian households, are feeling themselves under. The Food and Grocery Code Review being conducted by Craig Emerson, the former Competition Minister, is going to be looking now seriously at whether that Food and Grocery Code should be made mandatory rather than voluntary as it currently is, whether it should have teeth and whether it should have appropriate penalties that go along with the Food and Grocery Code of Conduct.

KARVELAS: And what is your instinct on this? You’ve been working on this very intensely. Should it be able to have criminal penalties, big financial penalties? What’s your instinct?

LEIGH: Well, we don’t set up a review and then pre-empt the findings, so we’ll look very much to what Craig Emerson has to say but the Government is actively considering whether that code should be mandatory. The consultations are open, running through to the end of the month.

KARVELAS: Profit margins for Woolworths’ Australian food business increased to 6.1 per cent in the six-month period to December. That’s up from 5.8 per cent a year earlier. Is that evidence of profiteering?

LEIGH: You see higher profit levels for Australian supermarkets than you do for supermarkets in many other countries. It does suggest that there is reasonably strong market power that they’re able to deploy. That market power is an issue both for suppliers and consumers, which is why the Government has been talking about better prices. We want to make sure if prices are dropping at the farm gate that they’re also dropping at the checkout and there’s a clear flow-through for consumers. If farmers aren’t getting as much for their products, consumers shouldn’t be paying as much for those very same products.

KARVELAS: Isn’t the issue though, even though you’re saying all these things, for consumers being able to go to the supermarket and be able to pay less is not something we can see in the foreseeable future until these reforms are delivered?

LEIGH: There’s certainly a challenge for cost-of-living right across the board, which has been one of the reasons why we’ve moved to reform the tax changes, and so we see every Australian taxpayer getting a tax cut from the 1st of July. That’s a direct cost-of-living measure, and really follows on from a lot of what we did in the budget last year. The improvements in Commonwealth Rent Assistance, the changes to Bulk Billing to make health care more important, the cheaper medicines policies such as 60-day dispensing. We’re very aware of Australian households that are feeling the pinch, and the importance of Australia doing as much as we can on this.

The thing about competition, Patricia, is it doesn’t come out of tax revenue. If we’re able to get a more and more competitive Australian economy we can get lower prices for everyone across the board and alongside that we get more innovation and we also get more opportunities for workers. Workers now, I think, are getting squeezed by the fact that sometimes there’s only a couple of people that want their labour. This so-called monopsony power could be one of the reasons why we saw sluggish wage growth under the former government.

KARVELAS: You say could be one of the reasons. Is that something you’re trying to work out? I mean, is it – do we have real evidence that that’s the case?

LEIGH: Yeah, there’s some evidence I presented in a speech last year looking at monopsony, which has been crunched by the Competition Taskforce. One of the places where the rubber hits the road, Patricia, is the so-called non-compete clauses: clauses in employment contracts that make it harder for workers to move to a better paying job. A survey the Australian Bureau of Statistics brought out yesterday showed that a fifth of Australian employers deploy non-compete clauses not just on executives but on early childhood workers, yoga instructors, security guards and hairdressers. That’s dampening wages potentially. It’s potentially also dampening innovation because it makes it harder for a start-up firm to get the workers they need.
Silicon Valley, one of the most innovative places on the planet, is in a state that bans non-compete clauses. So you don’t have to have a non-compete clause to have a competitive economy and, indeed, non-compete clauses could be acting as a drag on the Australian economy.

KARVELAS: You mentioned the mandatory code which is being considered. How quickly could that be legislated? Is that something that you would seek to do in the second half of this year?

LEIGH: We’ll wait and see what Craig Emerson comes down with his recommendation. The challenge with all of these things, Patricia, is we’re a first-term Government with an active reforming agenda. You know, the story of Australian politics writ large is fallow periods under the Coalition and activist periods under Labor. So it’s not a surprise that when you have a Labor government you have a busy legislative program.

KARVELAS: And is this the sort of legislation that you think should be prioritised with a sense of urgency this year?

LEIGH: Well, let’s see what Craig Emerson comes back with but there have been submissions that have been made by suppliers who are frustrated about their inability to comply under the exist voluntary code. And the small number of complaints is something that Craig Emerson will be looking at in his review, making sure that farmers and suppliers get a good deal. 

It’s not just the supermarkets; it’s also the processors. Sometimes for farmers who are supplying to processors they’re supplying into a pretty concentrated market and you’ve got to feel for the farmers because sometimes, too, they’re buying their products, like fertilisers and seeds, from concentrated markets. So in farming you’ve got a fairly competitive sector squeezed by concentration upstream and concentration downstream.

KARVELAS: Are you prepared to force the break-up of the major supermarket chains? Would you look at forced divestment for example?

LEIGH: No, look, we’re not looking at divestment powers at the moment. Where you see them in other countries they’re very rarely used, and they’re not a priority that we’re focusing on at the moment. We’ve got a big and ambitious competition agenda. We’re really focusing on things that are going to make a direct difference.

We’ve got a mergers consultation out, which is looking at whether Australia should update its merger laws reflecting the recommendations the Australian Competition and Consumer Commission has made for merger reform. Other countries around the world are looking at their merger laws. It’s only appropriate that we look at ours.

We’ve revitalised national competition policy; we’ve made some important appointments to the National Competition Council trying to get that state and territory process going as it did in the 1990s. Some of your listeners will remember the Hilmer reform process in the 1990s which turbocharged the Australian economy, delivered a great decade of productivity growth and on one estimate put around $5,000 a year into the pockets of the typical Australian household. So that’s what good competition reform can achieve.

KARVELAS: Yesterday Woolies shares dropped around 7 per cent after its CEO retired – September is when he is moving on. Do you think people trust corporations anymore?

LEIGH: There’s been a fall in trust in many major institutions across society. If you look at the Roy Morgan Trust in Profession Surveys that have been running since the 1970s you see large organisations – whether that’s religious organisations or government or business – declining in trust. Interpersonal trust actually held up relatively well over that period, but trust in large organisations has waned in Australia.
And, you know, I’m in one of the professions Australians tend to trust less. It’s a reminder of the importance of a National Anti-Corruption Commission and of all politicians acting with integrity, because for the progressive side of politics we really need that level of trust in government. I think that’s true for a business as well. A business is going to operate better if it can operate with the trust of the Australian community.

KARVELAS: The former chair of the competition watchdog Allan Fels has already looked into price gouging for the ACTU. That’s been handed to your Government. He’s made 35 recommendations. One is that legislation should be amended to make it an offence to charge excessive prices. Can that be done?

LEIGH: We’re certainly looking carefully at the recommendations that Allan Fels has made. He’s been a terrific contributor to the policy debate over many years. That report is a hard-hitting one. We’ll be feeding that through the Competition Taskforce and looking at what can be done.

KARVELAS: Just briefly to the issue of mergers, this week the court allowed ANZ Bank to acquire Suncorp’s banking arm for $4.9 billion after it had been rejected by the consumer watchdog. That’s a very clear reduction in competition. What did you make of that decision?

LEIGH: Patricia, it wouldn’t be appropriate for me to comment on a case which is underway at the moment and where there’s an appeal right. But we do know that our banking sector is relatively concentrated, and both the Australian Competition and Consumer Commission and the Australian Competition Tribunal acknowledge that. Where they differed was over the question as to whether this particular acquisition would cause a substantial lessening of competition.

KARVELAS: Okay. Graeme Samuel says he’s surprised that the ACCC took this position. Are you surprised?

LEIGH: Look, again, it’s not appropriate for me to be commenting on the particularities of a decision that’s before the courts –

KARVELAS: But were you surprised?

LEIGH: Again, you’re asking for me to make comment on a decision before the courts. As a member of the executive government, that’s just not appropriate for me to do. What we’re doing --

KARVELAS: Is the Government prepared to intervene? Because the Treasurer can intervene. Is it prepared to?

LEIGH: The Treasurer does have a further decision point in order to finally allow this acquisition to go ahead. There’s still time for an appeal from the Australian Competition Tribunal’s decision. Our focus, Patricia, is on the laws that underpin that. So when we first came into office we increased the maximum penalties for anti-competitive conduct. We banned unfair contract terms and we got going on this important competition reform agenda.

It is really vital for Australia that we boost competition, because that’s going to be one of key drivers of a more productive economy and ultimately for your listeners of higher living standards.

KARVELAS: Andrew Leigh, always lovely to speak to you. Thanks for coming on.

LEIGH: Likewise, Patricia. Thank you.