The Crest of the Commonwealth of Australia Treasury Portfolio Ministers
Picture of Chris Bowen

Chris Bowen

Assistant Treasurer and Minister for Competition Policy and Consumer Affairs

3 December 2007 - 8 June 2009

Transcript of 29/04/2008

Interview with Alan Jones

2GB 873 AM

Tuesday, 29 April 2008

SUBJECTS: Small business, consumers, Trade Practices Act, ACCC

ALAN JONES:

There's a young man in the Federal Parliament, Chris Bowen.  I first met him when he was just a young fella working for several ministers, actually, in the New South Wales Parliament, Labor Ministers.  He's now the assistant treasurer, it's big time, and the Minister for Competition Policy and Consumer Affairs.  A massive load.  And, as you know, we said yesterday he's announced proposed amendments to Section 46 of the Trade Practices Act.

You've heard me on about this for ages.  He says the amendments are intended to benefit small business and consumers, and they'll be introduced into the house, he says, by the autumn session.  That's around about August.  The blurb yesterday said the role of the ACCC will be strengthened by enhancing its information gathering powers, and that its laws stopped predatory pricing by outfits like Coles and Woolworths.  That will happen.

Now, as I said, you heard me about this for years and years. I've got to say one thing.  Whatever the weaknesses of all this, and I think they are mammoth, at least the Rudd Government is 50,000 light years ahead of its predecessor.  We've had a massive problem here, which I call the Woolworths factor, which is undeniably driving up inflation.  The highest average food prices in the industrialised world, and proof of that.  And there's a simple mechanism working out here, and that is that these people use their monopoly power to drive the little man out of work.

The first aim of big business is to put little business out of business.  And, sadly, many people in government, whether it's this government or the previous government, have never employed anybody.

Now, are these changes going to make any difference?  In other words, will this be the first Government that the bureaucracy have tied in a knot, or the last?

Now, this young man is young and he's new, and if he's going to win he's going to have to beat the bureaucracy.  It's a massive ask.  So far I think the bureaucracy, and Coles and Woolworths, are a mile in front.  They are out there in the market place making sure that the Government doesn't in any way alter the power that they now hold.  This is an enormous issue.  This is a young bloke, and I hope he's not going to be buried, because these people have careers in front of them, but he's on the line.

Chris Bowen, good morning.

CHRIS BOWEN:

Good morning, Alan.

ALAN JONES:

Can we keep this simple to start with, because my own view is we're going nowhere.  Prior to the Trade Practices Act way back in the Whitlam era anyone who bought produce at a trade price, don't matter who you were, you paid the same price, everyone large or small bought their goods at the same trade price.  Everyone was competing with the same cost base.  Then the Trade Practices Act put an end to this by making discounting illegal, except on the basis of volume.  So the bigger you got and the more you bought the better the deal you could negotiate with your suppliers, and progressively the little man was cleaned up.  It wasn't long before the effects of this began to bite and you saw the demise of small business.  By the 1980s the corner store proprietor could buy his goods cheaper at the Woolworths checkout than he could from his wholesaler.

Nothing you're talking about is going to stop that.

CHRIS BOWEN:

Well, Alan, the Trade Practices Act, you're quite right, hasn't been working, and we do need to strengthen it and strengthen it substantially.  And that's what the reforms we announced yesterday do.  Now, is this a magic bullet which solves all the world's problems?  Of course it's not, but...

ALAN JONES:

But it could be.

CHRIS BOWEN:

... but you do these things, and you don't rest on your laurels, and you just make the law stronger and stronger as you go.  Now, what I announced yesterday, Alan, was really giving the Trade Practices Act back the teeth it had when it was first introduced in 1974, and when it was strengthened again in 1986. But it's been watered down by the courts, Alan.

ALAN JONES:

Hang on, no, you've just, weren't you listening to me?  See, I've highlighted, I knew you were going to say that, and that's why I said what I said.  When it was brought in under the Whitlam era, before that anyone who bought stuff had to buy it at the same price.  It was illegal to offer someone a benefit that wasn't available to anyone else.  Then the Trade Practices Act under Whitlam, and he didn't know what he was saying because he was being bullied by the bureaucracy as well, and they said oh well, it's illegal to discount except on the basis of volume. So as the little bloke got bigger and bigger and bigger and the Woolworths and Coles, and that's where we are today, now all you have to do is to restore the discounting illegality and suddenly the little fella has got a horse to ride.

CHRIS BOWEN:

Oh, look, Alan, I've got to say we might disagree on that, because lot of people benefit out of that discounting.  You know, a lot of businesses benefit out of buying in bulk, not just Coles and Woolworths.  A lot of businesses benefit out of that, and we consumers win out of that, too.  You know, the local builder...

ALAN JONES:

No.

CHRIS BOWEN:

... buys in bulk...

ALAN JONES:

Chris, you see, you're reading a bureaucratic script. You go up to Chatswood Chase and see that the discount applies.  Let's see that Woolworths and Coles get a discount on money. So they're paying $278 per square metre, and the little fella's paying $1,018.  Okay.  Alan Jones and Chris Bowen are both in business.  Alan Jones is paying $278 a square metre for his rental property, Chris Bowen is paying $1,100.  Forget every other cost impost.  Can Chris Bowen ever beat Alan Jones?

CHRIS BOWEN:

Well, look, Alan, there are a range of issues which we are working through with the grocery inquiry, and look, I've got no doubt the cost of retail and planning and all those sorts of things will be one of the issues that comes up in the grocery inquiry and the sector that you're talking about.  But what we did yesterday, and what we're putting through the Parliament, is to really make it much easier for the ACCC to prove that a big, powerful business is trying to put a small business out of business by reducing their prices below cost for as long as it takes to drive that business out.

Now, I'm sure you'll agree, for a big company it's easy to say, well, we'll price below cost for six months, it won't worry us, but a small business just can't do that.  And that's what the reforms are that we announced yesterday.

ALAN JONES:

But hang on, Woolworths and Coles squealed like stuck pigs when Barnaby Joyce introduced the Birdsville amendment.

CHRIS BOWEN:

Yep.

ALAN JONES:

And they wanted it out of the books, and that's what you've told them they'll have.

CHRIS BOWEN:

But they've also opposed these amendments in the past, Alan.  This is a balanced approach which should have been welcomed by small business.  I think every small business group in the country that I'm aware of has welcomed these reforms announced yesterday...

ALAN JONES:

Well, hang on, yeah, but small business has been bashed up.  They most probably don't understand the fine print.  Look, the problem with 46, Chris, and you must get a brief from the bureaucracy about this, I mean it's been that the threshold is only applied if a firm had market power. That's what 46 is about.  And market power's been defined in the courts as the ability to raise prices without losing business.

CHRIS BOWEN:

That's right.

ALAN JONES:

So because in theory, because in theory Woolworths couldn't raise prices without losing business to Coles, in theory neither has market power.  Therefore they're both free to engage in predatory and anti-competitive conduct with small business without worrying about Section 46.

CHRIS BOWEN:

Dead right, Alan, until yesterday.  Dead right until yesterday.  Yesterday the reforms we announced removed the necessity to prove recoupment in the courts.  So that takes all that out of it.  No longer does the ACCC need to prove that Woolworths, or any other big, powerful company, could make up those losses.  Now, you'll remember, Alan, you're an expert on these things, you'll remember the Boral case.

ALAN JONES:

Boral case.

CHRIS BOWEN:

Where the High Court made that decision where they said, well, Boral was clearly trying to put this other company out of business, but we can't prove, or you can't prove, ACCC, that they could make up those losses afterwards.  So the...

ALAN JONES:

So Woolworths and Coles got through the net.

CHRIS BOWEN:

So all those big cases, immediately the ACCC dropped them and said, well, we're not going to waste taxpayers' money bringing these cases anymore, because you just can't prove that.  How could anybody prove, Alan, that a big company can make up the losses some time into the future when the small business goes out?

So one of the reforms, there were six reforms that were announced yesterday, one of the reforms is to make it clear to the courts the view of the parliament of Australia, if this passes, the view of the Parliament and the Government, is that it is not necessary to prove that.  That is a silly test, which the High Court put on in 2003.  As you rightly said in your introduction all commentators called on the previous government to revoke that, to appeal it, to fix up the high court's decision.  The previous government refused.  We're doing it.   So that, the biggest hurdle is...

ALAN JONES:

But what I don't understand is this, Chris, and the bureaucracy seemed to be, they, the bureaucracy - because in many ways government is about not changing the horse but changing the jockey.  The horse stays the same, the horse is the bureaucracy. And they are being lobbied unbelievably by big business, and the way out of this is to say, well, we'll just do what Canada says, because Canada says everyone, these are their words, I'm reading from the Act, 'everyone engaged in a business which engages in a policy of selling products at prices unreasonably low having the effect or tendency of substantially lessening competition or eliminating a competitor, or designed to have that effect, is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.'  And that law applies to everyone engaged in a business.

Why can't that be written straight into Australian legislation?

CHRIS BOWEN:

Well, because what we're doing, Alan, as I say, and we're putting some criminal sanctions in and putting some gaol time in for cartel conduct, which is something, again, long overdue, which I think you would agree with.  But what we're doing is saying - is you're dead right, that clause is quite similar to the new clause that we're putting in, except for the gaol terms, to say that...

ALAN JONES:

What's wrong with the gaol terms?

CHRIS BOWEN:

Well, look, let's give this a go.  Everybody's been calling on this, calling for this to give the High Court...

ALAN JONES:

There'll be no small business left, Chris.

CHRIS BOWEN:

Well, the other thing we're doing, Alan, and...

ALAN JONES:

See, California's got laws against selling below cost regardless of what level of market power you have.

CHRIS BOWEN:

Yeah, but see the problem with that is a lot of us benefited out of that.  If the supermarket at the end of the day has got leftover bread, and it's, you know, it's drawing to the end of it's life and it says, well, let's get rid of it even if we sell it below cost, what's wrong with that? Consumers benefit from that.  So you can't have a carte blanche law against selling things below cost.

ALAN JONES:

But we know that's not what we're talking about. I spoke to the man who introduced those laws, Professor Skidmore, I spoke to him last year, and he said that you can easily prove that laws that prohibit below cost pricing work in the consumer's favour and result in lower prices.  In other words, if you take the overall, forget the little benefits you might get from buying second hand bread that's been left over, which is a negligible benefit...

CHRIS BOWEN:

Sure, but...

ALAN JONES:

... you take it over the whole spread of consumer goods, he said to me the consumer is a mile in front.

CHRIS BOWEN:

No, look, I don't disagree with that, but the problem is, as I say, it's not just, I mean that's one example.  Post-Christmas sales are another one where firms often sell below cost, big and small firms sell below cost, and we all - I mean you've seen the rushes on post-Christmas sales.  A lot of that is below cost.

So you can't just, I don't believe you can just have a law saying you can only ever...

ALAN JONES:

But, hang on, if you made sure those things couldn't be sold below cost, what the authorities are saying overseas is the spread over 12 months of the benefit to the consumer would be a mile ahead.

CHRIS BOWEN:

Well, look, I think where we do agree, Alan, is that predatory pricing is a very bad thing.  And if I can just spend a couple of seconds on what we've actually done yesterday.  

First we've fixed that issue, that you pointed out, about recoupment.  We've also fixed the definition of 'take advantage.'  The courts said, as you know, you can't take advantage of your market power.  The courts have said that only means could you do it if you didn't have market power.  Well, that's a ridiculous test which the courts have put on.  So we've fixed all that.  We've brought in the Federal Magistrates Court. If you're a small business at the moment and you think that you're being driven out of business, you've got a couple of options.  You can go to the ACCC or you can go to the Federal Court.

Well, who's going to go to the Federal Court, Alan?

ALAN JONES:

You can't afford it.

CHRIS BOWEN:

You can't afford it.  It's a big, expensive, complex jurisdiction.  It's very important.  So we've said, well, the Federal Magistrates Court can look at these things.  It's cheaper, it's easier, it's quicker, and if you're a small business it's a lot more user friendly.  We've expanded the powers of the ACCC at the moment  They're researching on a thing that [inaudible] think is anti-competitive.  If they're going after a company [inaudible] think is doing these things they can have a choice.  They can get an injunction, but that means they have to stop investigating, because they lose their powers.  Well, we've stopped that.  We've said you can seek an injunction, you can stop them doing it, but at the same time you can keep your powers until the...

ALAN JONES:

Are you going to reappoint Graham Samuel?

CHRIS BOWEN:

Oh, the Government will work through that closer to the time, Alan. His term's not up until the end of July.

ALAN JONES:

Well, how long, because we're running out of time here, how long will this stuff lay on the table for public discussion, and how amenable are you to external submissions beyond the bureaucracy?

CHRIS BOWEN:

Well, I've got to say, Alan, this has been consulted on to death over the years.  We all know the problem with the Trade Practices Act, that nobody has ever fixed it.  So I haven't put this out...

ALAN JONES:

But supposing some people think this won't be fixing it.

CHRIS BOWEN:

Look, look, we're always open for ideas.  I'm always open for suggestions and submissions, and that's the way we do business.  But what we're not doing is saying, look, these are ideas, see what you think.  What we're saying is we're going to do these because there's been that many inquiries, reports, submissions into the Trade Practices Act.  The time for talk is over.  It's time to get on and do it.

Now, under the Act we have to lay these on the table for three months and see what the states think.  I can talk to the states about whether they can turn that around a bit quicker, but at a minimum three months, and we might try and do it a bit quicker, which means that it can't be introduced 'til August.  But if we can get it done quicker we will.

And then, look, Alan, this is a rolling program.  As I say, we've got draft legislation out there to criminalise cartels.  If you run a serious cartel, send you to prison.  I've got that out for consultation.  There's been a lot of submissions and a lot of strong views.  I'm working through all those at the moment.

And then hopefully soon I'll put out a revised draft to say this is the way we'll proceed from here, because America, the United Kingdom, everybody's got criminal penalties for cartels.  If you rip off consumers you go to prison. We don't have that, it's way overdue.  So we're doing that and we'll try and get that through later in the year.

ALAN JONES:

All right.  Well, look...

CHRIS BOWEN:

We're doing, we're doing all these things in a rolling process...

ALAN JONES:

Okay, well...

CHRIS BOWEN:

... yesterday was one phase in that process, Alan.

ALAN JONES:

Okay.  Well, I just have some concerns about any of that, but I suppose I'm like every other citizen.  If I can represent those concerns in a letter to the Minister there might be a chance that those concerns will be acknowledged, at least and considered.

CHRIS BOWEN:

Always happy to listen, always happy to listen, Alan.

ALAN JONES:

All right.  Always good to talk to you, too.

CHRIS BOWEN:

And you.

ALAN JONES:

Right-oh.  That's Chris Bowen, the young fella, the assistant treasurer in charge of this very, very difficult but absolutely crucial area of legislation.  But, as I said, a mile in front by whatever other governments have done.