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The Turnbull government has adopted the most controversial recommendation from the Harper review of Australia's competition laws.
'Effects test' win for small business
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'Effects test' win for small business
Malcolm Turnbull announces changes to competition law to protect small business from uncompetitive behaviour by big firms.
In a surprise about-face, it has approved the implementation of a so-called "effects test" after it was rejected by cabinet when Tony Abbott was prime minister.
Prime Minister Malcolm Turnbull has hailed the decision as "a vital economic reform," one that proves his cabinet is working well.
"This is yet again a case of my government taking long overdue reforms out of the too-hard basket and getting on with the job," he said on Wednesday.
Rod Sims, Australian Competition and Consumer Commission chairman, says it's "unambiguously good news for competition ... and very good public policy".
An "effects test" will prohibit big businesses with substantial market power from behaving in such a way that has the "purpose, effect or likely effect" of substantially reducing competition without any economic justification.
Small business has been calling for the Coalition to adopt the recommendation ever since the final Harper review was handed to the Abbott government in March 2015, but Wednesday's decision caught them by surprise.
One small business representative, when told of the decision, responded thus: "Well f--- me. We weren't expecting this. This is fantastic."
With just weeks to go until the budget, the decision will pit the Turnbull government squarely against the Business Council of Australia, and powerful supermarket groups such as Coles and Woolworths, who have bitterly opposed the recommendation.
It will also pit the government against Labor.
This week, Labor shadow treasurer Chris Bowen warned that an effects test, if adopted, would be a "multibillion-dollar disaster waiting to happen" that would create a "lawyers' picnic".
Business Council president Catherine Livingstone said on Wednesday she was disappointed by the decision.
"If Australia wants to have an innovation-driven economy, this is poor policy," she said.
But Professor Ian Harper, who chaired the panel that recommended an effects test, told Fairfax Media he was happy the recommendation had finally been adopted.
"We consulted very widely, twice. The government itself has consulted, twice," he said.
"This will strengthen competition, and make it easier for good businesses - whether they are big or small is neither here nor there - to meet the demands of consumers. It's about strengthening the law to protect the competitive process against the misuse of market power, and that can only mean better competitive conditions."
The "effects test" recommendation from the Harper review will require a change to Section 46 of the Competition and Consumer Act, which addresses the misuse of market power.
When Professor Harper gave his report to the Abbott government in 2015, former Small Business Minister Bruce Billson championed the recommendation in cabinet, but he was in the minority.
The controversy surrounding the effects test recommendation eventually led Mr Abbott to put the whole report on ice.
But when Mr Turnbull became leader last year he revived the report, saying he would like to make a decision on the recommendation by March this year.
On Wednesday, Mr Turnbull made a point of saying his decision was the result of good cabinet process – a veiled criticism of the way the former Abbott government cabinet worked.
"We had a very good and informed discussion in the cabinet. We run a traditional cabinet government," he said.
Peter Strong, chief executive of the Small Business Council of Australia, said the Turnbull government ought to be congratulated for its decision.
"The government has obviously resisted lots of phone calls, pressure and threats from the BCA and Wesfarmers," Mr Strong told Fairfax Media.
"We're now going to assess it over the next couple of years for its impact."
Treasurer Scott Morrison, in a joint press conference with Prime Minister Turnbull and Assistant Treasurer Kelly O'Dwyer on Wednesday, said the decision put the government on the side of competition and consumers, and ultimately the economy, and should not be seen as the government picking sides.
"This is about supporting the competitive process," Mr Morrison said.
"It's about competition. It's not about whether one is taking the view of larger businesses or smaller businesses or medium-sized businesses. It's about taking the view that competition benefits the consumer," he said.
The Greens have applauded the decision, calling it a win for small business and consumers.
"Today is a great step forward, but what we need now is a commitment from Mr Turnbull to legislate for an effects test in this term of government," Greens spokesperson for Competition Policy and Small Business Nick McKim said.
The Australian Chamber of Commerce and Industry also welcomed the decision.
"Competition policy is always controversial, but fixing section 46 will promote merit-based competition. Competition policy should not be viewed as a battle between big business and small business," ACCI spokesperson Patricia Forsythe said.
"The United States, Europe and most other jurisdictions use similar general tests, with no evidence of a chilling effect on competition or significantly higher legal costs," she said.
But the Retail Council slammed the decision.
"The backflip by the government is simply bad policy and the consumer is the loser," Retail Council chief executive Anna McPhee said.