Australia’s market concentration made the Covid-related shortages worse and will hamper the economy’s recovery and future growth unless addressed, Rod Sims, outgoing chair of the Australian Competition and Consumer Commission, said.
In a wide-ranging National Press Club speech on Wednesday, Sims described the market-based economy as “fragile”, blasted governments for focussing on how much infrastructure can be sold for, and described electricity and gas markets as a “mess”, in part because carbon emissions do not carry a price.
“In my view, and the view of many others, the Australian economy suffers from high levels of market concentration to the detriment of consumers and productivity,” Sims said, according to a copy of his speech. “The most important tool to prevent this is our merger laws and they are not up to the task.”
Australia was currently facing supply and logistic challenges because of Covid, he said: “I think these are made worse by our market concentration in so many areas and infrastructure bottlenecks. We need to address this through competition law, to tackle anti-competitive abuses of market power, and through general infrastructure reform.”
Sims has run the ACCC for 11 years but will make way for Gina Cass-Gottlieb who formally takes over next month. He made it clear, though, that he was not retiring, and would continue to push for competition reform.
On the current takeover bid for AGL Energy by Canada’s Brookfield and Australian billionaire Mike Cannon-Brookes, Sims said it was at a very early stage.
But he noted market regulations didn’t allow a company to own both generation and transmission assets. Brookfield’s $18bn acquisition of Victoria’s transmission firm, AusNet, would be looked at closely, Sims said. “It’s a very complex issue and we haven’t started to look at it.”
On the issue of rising petrol prices and tension over Russia’s aggression towards Ukraine, Sims said there was little the competition regulator could do as Opec and Russia operated as a cartel.
Australia’s petrol excise at 55 cents a litre was the fourth lowest such taxation and “I certainly wouldn’t be recommending the government step in and do anything about that”, he said.
Sims was also critical of gas producers misleading governments by telling them the development of three $20bn LNG export plants in Queensland at the same time – when there was only enough gas for two – wouldn’t affect domestic prices.
“That didn’t make any sense at the time, and it’s proved very wrong,” he said. “So they did tell governments something that turned out not to be true. I can’t believe they did not know that.”
More generally, Sims said people must recognise that a market-based economy is fragile as its organising principle relies on companies and business people pursuing their own self-interest”.
“For this to work to the benefit of all Australians requires at a minimum strong competition between firms and strong enforcement of the [Competition and Consumer Act].”
The ACCC now has 11 competition cases currently in court, and “some important competition cases which will unfold very soon,” he said.
Among law changes needed, he said, many people would be surprised to know that many activities such as selling unsafe goods, not honouring consumer guarantees, and large companies abusing their position of strength by treating customers unfairly, were not generally unlawful.
“There is a school of thought that commerce in a market economy is a no-holds-barred robust business, and that competition law should only rarely interfere in this,” Sims said, adding that anti-competitive activity was “by far” a larger problem than taking up enforcement cases that failed to find wrongdoing by businesses.
In addition, Australia was “almost unique in not having a formal merger approval system”, with the ACCC having to prove in court that future negative consequences would occur from a corporate combination.
Similarly, the country “almost uniquely” seemed to focus “on how much we can sell infrastructure assets for, rather than having our infrastructure benefit our wider economy,” Sims said. “Such behaviour can dramatically affect existing users and could be considered a continuing tax on the community.”
Sims also indicated the Abbott government’s scrapping of a price on greenhouse gas emissions had contributed to poor market outcomes in energy.
“Our electricity and gas markets are in a mess for a wide range of reasons,” Sims said.
“Most of the world has accepted that there is a negative externality associated with carbon,” he said. “With Australia having decided not to deal with this issue via a market-based mechanism, we are left with a challenge of how we achieve affordability, sustainability and reliability, without seriously trading off one of these objectives to achieve another.”
Among the ACCC’s achievements during his decade-plus chairmanship, Sims highlighted successes in extracting $200m annually from technology giants for their use of Australian content, and court wins against companies such as Trivago and Google.
The commission also secured recent penalties of $50m against Telstra, $125m against Volkswagen and $153m against education provider AIPE.
“I assure you all I am not retiring,” Sims said in concluding his speech. “I will have positions that will see me continue to advocate on many issues, both in Australia and internationally.”
In September, Sims was appointed vice-chair for digital coordination and Asia-Pacific liaison at the International Competition Network.
