Next up on the government’s reform agenda

Next up on the government’s reform agenda

Deputy Prime Minister Barnaby Joyce can take a bow. He has convinced cabinet to take a significant step in changing the nature of the Australian business community for the better — the decision to introduce a so-called “effects test”.

I will come back to why such a test was necessary for the nation later, but first it’s important to recognise that while the Turnbull-Abbott-Joyce period of government has not undertaken the spectacular one-off actions of floating the dollar (Hawke-Keating) or introducing a GST (Howard-Costello), it has nevertheless undertaken a combination of actions which we will look back on as being as significant as the earlier big reforms.

The free-trade deals negotiated by Andrew Robb rank with the biggest changes the nation has seen in one Parliament. Just as important is the unfair contracts legislation, which will change the lives of 1.5 million Australians and make many hundreds of thousands of bad contracts void next November (Big firms need to play catch-up on contracts, March 4).

The unfair contracts legislation will have an enormous impact, but it’s only the first step in the government’s nation-changing agenda, which needs to be completed in the next Parliament, assuming the coalition wins the 2016 election.

Accordingly, last week I set Barnaby Joyce four nation changing tasks (What Barnaby Joyce needs to do, March 11) and yesterday he achieved the first of them — getting cabinet approval for the “effects test”.

But just as important will be Joyce’s ability to convince cabinet that the Treasurer must force the Tax Commissioner Chris Jordan to do what he promised to do when he took in the job.

Chris Jordan set out to follow in the footsteps of a previous tax commissioner, Michael Carmody, who understood what is required to make a tax system work and raise money. But, as so often happens in Canberra, Jordan, in my view, was snowed by the Australian Taxation Office culture, which regained control when Carmody retired in 2005.

The small business tax issue and the “effects test” are mirror images of the same problem. Australia has a whole series of competition laws that work brilliantly when the groups involved are large corporations. The court system can sort out the matter because all the parties can afford the expense involved.

But let’s take the theoretical situation of a country town in which the local supermarket suddenly finds that Coles, Woolworths or someone else sets up shop and places a new store on what I will call the A-list, where the prices are the lowest in the land. The small operator is run out of town and then the town is put on the B-list, where the prices are substantially above those of the A-list.

Current competition laws would probably allow the small operators to go to court, but there is no way the small operator could afford the legal bills. And even if they could afford the outlays, they also have to prove that it was the aim of the large chain to drive the small operator out of business.

In other words, you have to prove what’s in the mind if the corporate executive — very hard.

If the “effects test” legislation is properly set up, the ACCC can take on such cases and the issue is the effect of the action not what was in the mind of the executive.

What makes this so important for the nation is that it is the smaller operators who are going to drive employment in the coming decade, so it’s vital for the nation that they not be driven out of business by giants.

Similar issues arise with Tax Commissioner Chris Jordan, who came out of KPMG and knows all the large company and international tax tricks and is doing a great job in this area.

But just as in competition law, when Jordan plays the heavy against a small enterprise he expects that the small enterprise will gain the protection of the courts like the large groups. But they simply can’t afford that protection, so the Australian Tax Office can break the law and not be challenged in the courts.

In the competition space, the government has agreed that we need legislation so the ACCC can do the job because the court system does not work for smaller enterprises. We either have to find a Carmody-style Taxation Commissioner who understands these issues or we will have to introduce legislation that enables the court system to be by passed in situations where the Tax Commissioner makes outrageous demands. The small operator must have a low cost redress.

Since Carmody retired in 2005, we have had two treasurers, Wayne Swan and Joe Hockey. Neither understood these issues. Our two great past Treasurers Paul Keating and Peter Costello took at least six months to get a grasp of the complex issues involved with being Treasurer.

The current Treasurer, Scott Morrison, was hit with enormous tax rate issues, so we need to give him time. But if he is not strong enough in the small business arena to tackle the Tax Commissioner, then Barnaby Joyce will need to step in and get legislation passed.

The tax issue ranks with unfair contracts and the “effects test” as part of the same nation-changing agenda.

Finally, as we saw with the unfair contracts legislation, governments can announce moves but then go on to introduce totally useless legislation. In the case of unfair contracts, the Senate gave the legislation teeth. Hopefully that will not be required with the “effects test”.

Not everyone agrees with me on the effects test and if you want a contrary view, read Stephen Bartholomeusz (‘Effects test’ risks damaging competition and innovation, March 16).