House of Representatives

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 4 - Trade Practices Act 1974

Outline of Chapter

4.1 This Chapter explains amendments to Part VB of the Trade Practices Act 1974 (TPA). The amendments are contained in Schedule 4 to this Bill.

4.2 A New Tax System (Trade Practices Amendment) Act 1999 inserted Part VB and Part XIAA into the TPA together with a Schedule version of Part VB. Part VB of the TPA confers on the Australian Competition and Consumer Commission (ACCC) powers to monitor prices and institute proceedings against corporations that engage in price exploitation during the transition to the New Tax System. The States and Territories have agreed to pass legislation adopting a Schedule version of Part VB as a law of their own jurisdiction, thereby establishing a National Price Exploitation Code with uniform coverage over incorporated and unincorporated businesses.

Context of Reform

4.3 Under Part VB, as it presently stands, the ACCC may monitor all prices throughout the entire New Tax System transitional period (i.e. 8 July 1999 to 1 July 2002). The ACCC can also, from 29 July 1999, issue price exploitation notices (under section 75AW or 75AX) or institute proceedings against businesses that fail to pass on the wholesale sales tax reductions from 32% to 22% on a limited range of electronic and gift goods. However, the ACCCs enforcement (as opposed to monitoring) powers with respect to all other goods and services do not commence until the GST implementation date (i.e. 1 July 2000). This result stems from the current definition of regulated supply contained in section 75AT of the TPA when read with the prohibition in section 75AU of the TPA.

4.4 Therefore, if a business unreasonably raised its prices in anticipation of the GST (i.e. before 1 July 2000), in contravention of section 75AU of the TPA, the ACCC could not exercise its enforcement powers to issue a price exploitation notice or institute proceedings under Part VB or the Schedule version of Part VB of the TPA until 1 July 2000.

Summary of the amendments

4.5 The proposed amendments to section 75AT will bring forward the date of effect of the ACCCs enforcement powers so that the ACCC can exercise those powers immediately with respect to unreasonable price rises made even before the GST is implemented. A minor amendment to subsection 75AU(2) is also proposed to make it clear that the prohibition against price exploitation is to apply to supplies made before and after the GST is implemented. Identical amendments will be made to the Schedule version of Part VB of the TPA.

4.6 The new date of effect for the ACCCs enforcement powers will be the date on which this Bill receives Royal Assent. [Subclause 2(1)]

Detailed explanation of the amendments

4.7 Items 1 to 4 amend the TPA to ensure that the ACCCs enforcement powers extend to the supply of any good, service or anything else during the transitional period and before the GST is implemented (i.e.between 8 July 1999 and 30 June 2000). Previously, the ACCCs powers during that period were restricted to supplies of the limited range of electronic and gift goods subject to the WST reduction from 32% to 22% on 29 July 1999.

4.8 Items 1 and 3 amend subparagraph (a)(ii) of the definition of regulated supply in section 75AT and clause 75AT of the Schedule. New subparagraphs (a)(ii) and (a)(iii) will treat supplies made before 1 July 2000 as if they were made on or after 1 July 2000. Thus supplies made before 1 July 2000 that would be taxable supplies by persons that will be required to register for the purposes of the A New Tax System (Goods and Services Tax) Act 1999 will be subject to the price exploitation prohibition in section 75AU. [Items 2 and 4] Effectively, for-profit businesses with annual turnovers exceeding $50,000 (and $100,000 for non-profit businesses) will be liable for substantial pecuniary penalties under the TPA if they unreasonably raise their prices in anticipation of the GST.

4.9 Paragraph (b) of the definition of regulated supply remains unchanged and thus there will be no change to the ACCCs enforcement powers in relation to supplies made on or after 1 July 2000 and before the end of the transitional period (1 July 2002).

Application

4.10 The amendments made by Schedule 4 will commence on the day this Bill receives Royal Assent.