POSITIVE POLICY

Giving the Consumer Watchdog More Teeth

This policy suite is designed to deter and punish anti-competitive and anti-consumer conduct by increasing penalties, using some of the increased revenue from these penalties to increase the Australian Competition and Consumer Commission’s (ACCC) litigation budget, and give the ACCC formal powers to conduct market studies in the public interest.

The case for change

There is a broad public concern about the lack of competition in Australian markets. This concern is not limited to banks, supermarkets and petrol retailers. Many people are worried that Australia’s markets are not sufficiently competitive in a range of areas.

At the same time, penalties for engaging in anti-competitive conduct and for breaching the rights of consumers are inadequate. Penalties are too small to act as a deterrent, are low by international standards and are seen as a mere “cost of doing business” according to the Federal Court [i], [ii], the ACCC [iii], and consumer advocates [iv].

For example, the ACCC has appealed the $1.7 million penalty imposed on Reckitt Benckiser for misleading or deceptive conduct regarding Nurofen products. The penalty was small relative to company turnover and the profits made on the products, and is unlikely to have a deterrence effect [v].

Over the last 5 years we have seen a range of appalling contraventions of consumer rights, often targeting the most vulnerable members of our community. These include predatory consumer leasing agreements, breaches of product safety standards, scams and misleading advertising [vi].

The maximum penalty a corporation faces for breaching the Australian Consumer Law (‘the ACL’) is $1.1 million. This is very small relative to the annual revenue of large companies. It is one-tenth the size of the maximum penalty under the Competition and Consumer Act 2010 (‘the CCA’) competition provisions.

Whether it involves cracking down on misleading consumers, inappropriate market practices with suppliers, or busting cartels, Australians want to know that they have a strong competition regulator on the beat. The primary criticism of the ACCC is that it lacks teeth because of insufficient penalties, which is a legislative constraint imposed on the Commission.

What is Labor’s proposal?

Labor will:

  1. Increase civil penalties under the Australian Consumer Law from a maximum of $1.1 million to $10 million, bringing penalties in-line with the competition provisions of the Competition and Consumer Act 2010.
  2. Adopt the EU’s penalty system for anti-competitive conduct, which is based on 30 per cent of the annual sales of the relevant product or service, multiplied by the number of years the infringement took place, limited to the greater of 10 per cent of annual turnover or $10 million (as per existing threshold).
  3. Use some of the revenues from increased penalties to increase the ACCC’s litigation budget from its current level of $24.5 million to a maximum of twice that level ($49 million).
  4. Amend the Competition and Consumer Act 2010 to give a market studies function to the ACCC to explore public interest issues such as pricing discrepancies and increased market concentration.

How will it work?

The policy package will require legislative amendments to the CCA. The policy package deters and punishes unscrupulous conduct by businesses that hurt consumers – particularly vulnerable community members. It builds upon the reforms announced in Labor’s Fairer Markets for a Fairer Australia policy [vii].

The policy package fosters competitive markets as per the original intention of the CCA and ACL. Competitive markets improve consumer welfare, drive innovation, increase production and job creation and reduce the cost of living.

The proposed anti-competitive conduct and market studies reforms bring Australia in line with international best practice (including the EU and UK).

Currently the ACCC escalates about 60 consumer and fair trading cases per quarter from approximately 10,000 complaints. An increased litigation budget will assist in prosecuting large and complex cases without decreasing the number of escalated cases [viii].

An increase in the litigation budget signals the ACCC will have the capacity to pursue the most egregious breaches. These breaches warrant the highest penalties but also involve complex litigation.

A market studies function was recommended by the Harper Review. Market studies explore competition issues of public interest such as increased market concentration, [ix] the impacts on inequality in certain markets, and to ensure markets are functioning in the best interests of consumers. Australia is an outlier internationally, having no body with a fully independent market studies function [x].

Formal market studies can guide policy makers, instigate legal action, and inform consumer information campaigns. We believe the ACCC is a natural fit for market studies, our proposal formalises and significantly expands some of the market study functions available to the ACCC.

The recent laundry detergent cartel [xi] demonstrates the reality of such behaviour in Australia. A new penalty formulation in the CCA will guide courts to more appropriate, higher penalties.

This policy will deter and punish unconscionable conduct, ultimately leading to better outcomes for consumers and more competitive markets.

Labor’s record

The Labor Party is the party of the Trade Practices Act 1974, the National Competition Policy, the Australian Consumer Law (ACL) and the criminalisation of cartels. Australians can trust Labor to get it right when it comes to competition and consumer protection.

The ACL is a vital piece of legislation that protects consumers from things like unconscionable conduct, unfair contracts, unsafe products, misleading conduct and scams. The ACL brought together State, Territory and Federal governments, and was implemented by the previous Labor Government.

Liberals’ record

Labor, in contrast to a divided Liberal Cabinet, is united and releasing tangible policies, including strengthening the ACCC, Australia’s frontline defence of competition and consumer issues.

The Liberal Government has not supported the ACCC to pursue litigation. In a recent annual report, Rod Sims noted the difficulty in operating in a constrained fiscal environment [xii].

Financial Implications (PBO)

 

2015-16

2016-17

2017-18

2018-19

Total [xiii]

Net Impact

-

-

31.2

31.2

62.4

The costed components are expected to increase the underlying cash and fiscal balances by $62.4 million over the 2015-16 Budget forward estimates period.

This represents an increase in revenue of $111.4 million from the increased ACL civil penalties component which is partially offset by the increased departmental expenditure of $49.0 million associated with the increased ACCC litigation budget.


Endnotes

[i] Smart Company, 1 February 2015, Too big to care: Will Coles and Woolies lift their game in 2015?

[ii] Federal Court of Australia, 22 December 2014, Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 (22 December 2014)

[iii]ACCC, 23 May 2016, ACCC appeals $1.7m penalty against Reckitt Benckiser for misleading Nurofen representations.

[iv] E.g. CHOICE, Consumer Action Law Centre, Legal Aid NSW, Australian Communications Consumer Action Network

[v] ACCC (2016)

[vi] Some ACCC cases with media coverage: “Woolworths misled consumers over product safety hazards”, “ACCC takes action against SoleNet, Sure Telecom and James Harrison”, “Free Range Egg Farms ordered to pay $300,000 penalty for false or misleading “free range egg” claims”.

[vii] Full details and background research are in Andrew Leigh’s John Freebairn Lecture in Public Policy titled Markets, Monopolies & Moguls.

[viii] Auditor General (2016), ANAO Report No.23 2015–16 Performance Audit Managing Compliance with Fair Trading Obligations Australian Competition and Consumer Commission.

[ix] See Andrew Leigh’s ‘Markets, Monopolies & Moguls’ speech, 19 May 2016.

[x] Prof. Ian Harper et al (2015), Competition Policy Review, pp.447-459.

[xi] ACCC (2016), Woolworths ordered to pay $9 million in penalties in laundry detergent cartel proceedings.

[xii] ACCC (2014), Annual Report.

[xiii] Totals may not sum due to rounding