A super profits tax is a fair price for anticompetitive behaviour
Meta, the consulting giants, Woolworths and Coles remind us that it’s time to put competition back on the negotiating table, says Matt Grudnoff, senior economist at the Australia Institute.
Australia has not had a genuine conversation about competition since the 1990s, said Grudnoff. Consequently, the "natural tendency" towards monopolisation and away from competition has only played on.
Given that true pro-competition reform often proves too difficult, unpopular, or else is simply ignored, Grudnoff said the next best “fallback position” is to tax those benefiting from the thumbed scales.
“If we have uncompetitive markets, we should try to get competition as the first case. But second case is taxing super profits,” he said.
“It’s the government's job to take those super profits and distribute them back into the community.
True reform might look like vesting the ACCC with meaningful power to curb the reverse entropy of deeper and deeper monopolisation upstream.
“The ACCC is kind of hamstrung. It’s more of a fallback when things go wrong … once things have gotten worse, they don’t have very many powers to make things better,” he explained.
“They don’t have any powers to inject more competition into the market.”
Unlike its UK and US equivalents, the ACCC lacks strong divestiture powers – meaning it cannot force the break-up of big corporates via court order.
Recently, economist Allan Fels said such powers would be a “huge stick” against anticompetitive behaviour, adding the power would have a “big effect on business behaviour generally.”
Existing prohibitions against big companies “taking advantage” of their power are “relatively ineffective,” said Fels.
“Business tends to not take too much notice of [the prohibition]. But if there is a chance of divestiture, it would make a huge difference.”
Asked what he made of the Coles and Woolworths competition debate, Grudnoff said it seemed the topic had a habit of resurfacing during costs-of-living crises when “suddenly it’s on everybody’s radar.”
Groceries are the most visible manifestation of a deeper issue, he said, from banking and consulting to social news media, internet search providers, and logistics.
Another example is the ongoing debate over Meta (the owner of Facebook and Instagram) and Google's outsized share of digital advertising revenue and their relatively low Australian tax contributions. It has been estimated that in 2022, the pair received a collective 60 cents per dollar spent on digital advertising in the country.
By claiming ad reseller status, the two are able to cut their tax bills substantially. For instance, Google made $8.4 billion in 2022 across its products, yet declared only $1.95 billion in revenue, on which it paid $92.6 million in tax. Facebook,
Australia’s News Media Bargaining Code, created in 2021, compelled Meta to pay roughly $70 million to compensate for the benefit it derives from having news media companies post their content on Facebook and Instagram.
The code was passed to tackle the effective monopoly held by Facebook and Meta over digital advertising in Australia and to get big tech to pay up on the near un-taxed profits it derives from Australian users.
What the code achieved was not a bust-up of the monopoly or effective tax reform, it was a nominal compensatory levy imposed to heap relief on the long-suffering news media industry.
Recently, the social media giant said it should be excluded from the code given its business model had changed. Not only had its audience cut back on its news consumption, but Meta also said it would go so far as to get rid of its news tab feature.
Many are struggling to find sound justification for the tax beyond the unprofitability of the news media industry and the sour taste of a digital advertising monopoly.
As noted by Queensland University of Technology professor Alex Bruns, “It’s a bit like taking mining royalties to fund kindergartens.”
Competition challenges are not unique to Australia, but it is “probably at the front end of it,” he said.
“Firms that make large profits without having to do very much are far less likely to innovate because they’re already making large profits,” said Grudnoff.
“So, what we’re seeing is less innovation and less productivity, simply because we have less competition.”
A few decades ago, when competition was more on the national agenda have left a complicated legacy. In the early 1990s, the country was asking “what we could do to move competition forward” – culminating in the Keating Government-commissioned Hilmer Report of 1993.
That report, which was charged with modernising the Trade Practices Act to overcome the anti-competitive implications of overlapping state and federal legislation resulted in a raft of legislative changes and the creation of the Competition Principles Agreement in 1995.
Its impact has been heralded by some – including the Productivity Commission – for paving the way for ensuing economic growth and denounced by others for its narrow focus.
Whether the broader push to privatisation had a positive effect on competition is also debatable, said Grudnoff, yet at least substantial reform was seriously entertained.
Now, the debate is fragmented into fleeting, sector-specific outrage. “We’ve got an inquiry into the supermarkets over here, we’ve got an inquiry into big consulting firms over there … but actually, all the problems are linked.”
What we need, he said, is to take a deeper look at competition more generally. The government needs to “consider consults and draft real laws.” Shy of upstream regulation, super profit taxes are needed “where competition is not possible.”
And the first step to that deeper conversation is getting the right data.
“One of the things I would love to see is the Government fund the ABS to produce an annual competition publication … because there are lots of different ways you can measure it,” he said.
