Senate Economics Legislation Committee, , 3:18:23 to 3:41:52
Discussion centers on supermarket price gouging investigations, the Food and Grocery Code, and competition policy.
Topics: Government spending, Infrastructure, Cost recovery
Speakers: Nick McKim, Jason McDonald, Fatima Payman, James Kelly, Hon Katy Gallagher, Hon Jane Hume, Lisa Darmanin
>> Thank you, chair. Good afternoon. Um, my questions are around price gouging and the excessive pricing regime. Uh, in December, the competition and consumer industry codes, food and grocery amendment, supermarkets excessive pricing prohibition regulations 2025 were made. Now firstly are these regulations where the government's work works on this issue will end or is an actual bill in development. >> Uh Jason McDonald first assistant secretary competition consumer policy division. So there is uh the price gouging legislation which has already been introduced into parliament and um what I'm trying to ascertain is what is the legislation going to do that the regulation can't do?
So uh well this gives the uh uh the HC
enhanced powers to uh look at excessive pricing by supermarkets uh then look at uh when supermarkets are
charging excessive pricing and take
>> and can I the the legislation that you referred to that's a delegated legislation rather than a bill so what I was actually asking was is there an actual bill in development
No, the the amendments to the pro uh to we're using as the instrument. Uh that
>> Okay. Um under paragraph 45B 1B it provides that no penalty can be applied in the case of price gouging to a person who is not a body corporate. What is the purpose of this paragraph?
So uh I think the intention is that there there is obviously penalties for the business but that is to uh avoid people that that is to avoid a manager say of a local uh supermarket from giving a discount and then being thought and then have risking them being charged and having fines on it and therefore not having the in the incentive to give the discount. So we we wanted to avoid unintended consequences where businesses weren't able to uh offer discounts or or or discounted pricing in sort of uh special circumstances and then the individual themselves be held accountable for it. So the local manager or the local uh person responsible for pricing but the penalties are obviously still there for the supermarkets
So just so I have it on the record, >> if a person within a very large retailer directs that retailer to engage in excessive pricing, they're not held
>> Uh this will be probably a better a question directed at the HC about how they're going to uh implement it and what they believe the scope of the legislation is. But the intention of taking out the penalties for individuals was to allow the individual managers to make u uh price discounts without the re fear that they wouldn't do it. because of the the risk of how how it would be implemented. But the penalties are always and have been intended to target
>> But that don't wouldn't you see that as a loophole for people to you know exploit the system?
>> The advice that uh we we had a lot of discussions with the HC about this and I don't think they think it's a loophole.
Um, excessive pricing is defined by the rules as supplying or offering to supply a grocery product when, and I quote, the pricing for the supply is significantly excessive when compared to the cost to the very large retailer of the supply plus a reasonable margin. End quote. What does significantly excessive mean in this context?
I think it means the normal uh the normal definition uh uh you know when you when you are able to charge a price after you've taken out all of your uh costs including a rate of return u then then that would be uh considered excessive and I think it's in the normal you know the average consumer's understanding of it and uh and of what that means.
>> Are you able to give us a percentage of what that would look like?
You can ask the AC how they intend to administer it that you know whether they're going to have rules of thumb uh
>> but does the department not have an indication or gauge of what that's going to look like?
>> Uh well we we would leave it to the regulator to um
>> assess okay. I mean we always get this tension between do we want a kind of principle based law that sits a high level kind of expectation or do we want to have very detailed law that tries to prescribe what outcomes there are
>> sorry I missed that
>> that tries to prescribe exactly how things are going to work in this case the government's made a decision to go with a high level principal approach there is that reflects effectively the approach that's been adopted in the European Union uh in in respect of excessive pricing laws they have a history there of cases beginning to unfold and unpack, you know, kind of court cases unfold and unpack how that how that um um uh prohibition works. And so, you know, there's a body of international juristprudence on this that can be drawn on and obviously as Mr. McDonald said, it's something for HC to turn its mind to and and consider what guidance it gives uh supermarkets about how it'll interpret it. But ultimately the courts will be the the testing uh test bed u for its application and was that the courts >> ultimately the courts. So you know and the if you think about the competition and consumer act it has um very kind of high level principle based laws around uh um misleading conduct and unconscionable conduct. These are really important important laws in the system to make sure our markets function efficiently. those laws have been more effective for being high level and principal based and able to capture a range of developments rather than being very prescriptive.
>> Okay. Um well that's how that's the case. What does a reasonable margin mean in the in the in the text that I read earlier within that context?
>> So uh as an economist a reasonable margin will mean um a margin sufficient to uh encourage the business to perform the activity at a rate of return that allows them to perform the activity. uh we're trying we're trying to uh target economic rent in as an example. It's not obviously in the legislation because uh it's it's difficult to get an economic definition sorry a legislative definition around it but uh a reasonable rate of return is a normal rate of return in an economic sense and everything above that would be an excessive rate of return which is economic rent which is an economic rent is uh uh a return not needed to keep that factor in its current job.
>> Sorry, what was that last part? So
economic the the we want the supermarkets to continue to provide uh uh goods and services to the community. Uh and a a normal return or reasonable rate of return would allow that to happen. An excessive rate of return means it's above that and they're earning more money than they actually need to provide that good or service including a rate of return on their capital risk adjusted.
Has Treasury received any representations from the AC about what it thinks excessive pricing is or is that left to them?
>> We would we would rely on their uh uh their analysis uh and there is some analysis I think in the supermarkets and which led to this around u uh profits and profitability of the sector and I presume they would use a similar kind of uh methodology when enforcing this uh
legislation. Can you shed light on how um how will the cost to very large retailers of supply be determined?
>> I think that that would be something directed at the regulator given it's you know at the operational level.
>> No worries. I've only got two more. Um given the many factors that affect supermarket prices and the volatility of those factors, how will the cost of supplying products be able to be reliably determined?
>> So that is the reason why it is a principal based legislation. It requires analysis of the facts on the on a case-by case basis and that would be something that the AC will be
I'll definitely put these questions to the AC as well. Uh, what new information systems will be developed to assist in tracking the cost of supplying products to enforce the excessive pricing regime?
>> Do you mean by the AC or by the supermarkets?
>> Um, by the AC that would be a question >> Do you have any information of how the supermarkets may navigate that?
So we have had uh a lot of consultations with the supermarkets when we were drafting uh this pro these provisions um and we were uh looking at the information they already were providing the HCC and we don't expect them to be making significant new investments in new information uh uh uh gathering or prov or or ways of providing information to the AC. >> So we don't we don't we don't expect them to be making significant investments to comply.
So, but the onus is going to be on them to comply and that's on the AC to ensure that they comply. But we don't know what systems they're going to put in place.
>> Well, uh I think the the expectation is the information that the AC already has available for them or could uh could get from the from the supermarkets it will be sufficient.
>> Okay. All right. Well, I'll put these to the HC later. Thank you, Chair. Thank
>> Uh thanks. Just quickly on um the same um was it a government decision? Did did the decision come from government or from Treasury to give effect to uh the the the announcement from the prime minister in the election campaign that supermarket price gouging would be made unlawful. was where did this decision come from to do that through the food and grocery code rather than a um an amendment to the competition act
for example? So all the decisions obviously are the are the decisions of ministers but are they uh we do provide advice to to our ministers about how things can best most effectively be done
>> and was it treasur's advice that this should be done through via the uh food and grocery code rather than the
>> We um uh we provided advice on what would be what we saw as being the most effective and timely way of of getting it done and that was the the the food
and grocery code. Okay. Um, was it also Treasur's advice that um that this policy should be limited to the supermarket sector and not um not across
>> Uh I think our I I actually can't recall at the time what our advice was.
>> I think the government
set the parameters.
>> That's right. >> Yeah. So that was a government that was a decision
>> was based on the prime minister's
announcement. Yeah. based out of the the prime minister's announcement and and you ran a consultation process obviously and I've read some of the submissions Wworth suggested that you make this economywide did they not in their
>> I think uh without without um specifying the supermarkets by by name I think that they were uh uh they did want it to apply broadly to not and not just be not just capture the two large ones.
>> Well, W was put in their own submission and it said that any new excessive pricing prohibition should be applied economywide as an extension of other regulations already applicable to firms with substantial market power. I mean, that's what Woolworth said in their submission, isn't it?
>> I haven't got I can't recall that from I can check that for you, Senator, if you want.
>> All right. No, that's fine. It is what they said. um and choice. Um the um the consumer representatives or one of the consumer representatives said it's not clear why the government has decided that price gouging is only wrong if a supermarket does it. So, Minister, why did the government decide the price gouging should only be addressed if it's done by a supermarket and decide to let big banks off the hook, bid in big insurance companies off the hook, big big energy regulators off the hook, the airlines off the hook. Um, some of which have um a concentration of market power uh akin to Coulson Worth in the supermarket sector.
Well, our our election commitment was about supermarkets and you um that doesn't mean to use your term uh letting others off the hook. There's already existing uh powers uh that are available to regulators. Um so our commitment was looking at supermarkets and that's what we're focused on implementing.
>> Yeah. But my question minister is why has the government formed a view that price gouging excessive pricing should only be addressed in the supermarket sector and that it not be addressed across the rest of the economy where there is undoubtedly price gouging going on in many sectors.
Well, I mean, I can only repeat what I did in my previous answer, which is uh the AC has provided clear evidence of entrenched market power and limited competition. It's a targeted response based on a strong body of evidence that directly affects the cost of living for Australian households. Uh there are also a range of other measures underway to improve competition and transparency around the economy including cracking down on shrinkflation, increased funding for the regulator for AC and stronger merger laws.
>> Yeah, I'll come to some of those shortly, but um the reason the AC provided that advice on supermarkets is because the treasurer instructed the AC to have a look at the supermarket sector. uh once the Greens le Senate select committee had finished doing its outstanding work I might add
>> all good things come back to Green's ideas in your world don't they
>> well um eventually uh Minister the government did uh accept the proposition after mocking it I might add for 18 months accept the proposition that um excessive price gouging could be addressed um I'm trying to find out why the government made a decision to only limit addressing excessive pricing to the supermarket sector and not to the entire economy.
>> Yeah. So I've answered it the third time I'll answer it is all right. >> It's directly affects cost of living for Australian households. Um that is the commitment we made in the election campaign and that's what we're
Australian households are getting smashed by spiraling insurance premiums uh at the moment which is just as one example contributing massively to cost of living pressures. Let's just leave that aside for a minute. I know there's no submission from the AC uploaded to Treasury's website. Did the AC I understand you you gave evidence to questions from Senator Payman that you that you had a you know conversations with the AC did they not provide a submission to your consultation?
uh we engaged with the HC uh very very closely in preparing uh both the advice and uh also the prohibition
>> but they didn't submit to
>> I can't recall them providing a submission but I think it would have been superseded by all the other conversations and and information that we got from them.
>> All right. Is Treasury aware of any other uh similar jurisdiction anywhere in the world that has addressed excessive pricing that's only limited to limited the um the response to one section of the economy?
>> I haven't made that kind of inquiry
>> So senator like um I gave the example before the European Union approach. I think they have a general pro prohibition but in practice it's only been applied to particular sectors uh like pharmaceuticals and in Australia the context around pharmaceuticals quite different given PBS and things like that. So the when we've had when country the evidence I'm aware of is when countries have a very general regime it tends to only be useful and only applied in very specific sectors. Yes, it may
have a um an effect of dissuading price gouging though, might it not, Mr. Kelly? Uh if it was in place more broadly across the economy and perhaps those other jurisdictions where, as you've said, uh it does apply economywide, it's possible that it has a an effect of um dissuading corporations with uh significant market power from engaging in price gouging.
uh a lot of things may be senator. It's not something I'm I'm going to claim to be expert on.
>> All right. Um so the OECD uh in their economic survey on Australia says Australia was once regarded as a leader in competition policy, but its competition policy framework has fallen behind the frontier relative to its OECD peers. Is that fair? Um I don't know minister Mr. McDonald Mr. Kelly I mean this is an O I mean has anyone read that?
>> Yes Senator.
>> Yes Mr. McDonald
>> we have read it. Um I think it that that uh it is quite common of the of the government's uh policies around national competition policy etc. Uh uh so I think you can read different parts of it and maybe get different messages. Obviously, I'm not aware of all all of the countries in the OECD's competition frameworks, but I would have uh thought that the new mandatory merger control regime, the government's policy around non-competes, national competition policy would be uh moving us in some ways uh much closer if not to the
>> Well, thanks chair. Um the report does say that Australia's fallen behind relative to uh OECD and it does commend the merger reforms which um were put through the parliament with uh the support of the Greens. Um but
>> there you go again Senator Kim.
>> Oh well it's nice to have some influence in here and some influence on Labor. Um but the report goes on to say many key sectors in Australia are highly concentrated and it says prices are high and markups have risen. Um I mean it's the case isn't it that firms with high levels of market power are more easily able to um to mark up higher than um firms that were operating in a more highly competitive market. That that that's fair comment, Mr. McDonald, isn't it?
That is a fair comment, Senator.
>> Thank you. Um and the RBA has conceded um in estimates last year that some firms are using the cover of high inflation and a lack of competition to raise prices above uh increases in input costs. Would would Treasury agree with
>> Uh sorry. Was the question is inflation providing a a mask for uh price gouging? Is that the
>> That's another way of putting it. But I was very careful in the way I put the question because I I'm not trying to verbal miss Bullock here.
>> Um >> so Senator like a question of that which goes to those more general issues around inflation and what's driving inflation better asked to the macroeconomic group which just appear.
>> No, I'm I'm not asking
>> prefer not to venture.
>> I'm not asking about inflation. I'm asking whether treasurer agrees with Miss Bullock's um contention that some firms were using in 2024 were using the cover of high inflation >> and lack of competition to raise prices over and above increases in their input costs.
>> So like as a general answer firms say a lot of things and will provide reasons that kind of sometimes more more um kind of more substantive than others. And I'm sure that's one example of when firms make um justify their prices.
>> To wind this block up. Thanks.
>> All right. Thanks. Um the report the OECD I mean I just find it interesting that Matias Corman is schooling Labor on competition policy. I have to say Minister I find this pretty
to see.
>> Well I mean I do I do recommend it to you minister. Um it does attribute um our decline in um competition policy framework relative to other OAC um states. Uh it attributes that in part to relatively few successful competition law cases and penalties that are low by international standards. And it recommends enforcing competition law more vigorously and consistency consistently by enhancing the AC's infor enforcement capacity, simplifying the legal framework and increasing average penalties is uh has the government asked Treasury or is Treasury currently undertaking any work that would enhance the AC's infor enforcement capacity? simplifying simplify the legal framework or andor increasing the penalties.
>> Well, I mean Treasury and Treasury ministers work closely with the A and we um work with them um very closely and listen to their you know if they have uh advice to provide about gaps or issues that they see in their uh regulatory powers and um we take that seriously. Um the OECD report I'm advised spoke of uh that our moves uh are encouraging in this area and they welcome merger reforms the national competition policy and non-competes. Uh and I'm also advised we've increased penalties to $50 million, a five-fold increase in penalties. So I think that shows again the record. Um, and this is an area that Assistant Minister Le um, has responsibility for and brings huge energy to. Um, and that's why you're seeing all the work that's being done.
>> Just can't get you over the line on devestigure powers. Minister, unfortunately, uh, Mr. Lee has just failed to get you over the line.
Thank you, Senator PCO.
>> Cross. Sorry, just three from the crossbench. come back to opposition. Two two from the cross branch. Can we come
>> you only told me about them after I'd already set the list up?
>> Well, we've got another 20 minutes and we said we were going to break it one.
>> Yeah, I think we I think we should be