The cost-of-living crisis has been caused by companies squeezing consumers and suppliers to breaking point, says report from ACTU inquiry.
An inquiry into price gouging commissioned by the ACTU and overseen by former Australian Competition & Consumer Commission (ACCC) Chair Professor Allan Fels has found most of the inflation observed in the wake of the pandemic was a product of increased profit margins.
This finding is consistent with international evidence, and challenges the orthodox economic model that says inflation begins with higher wages, which are passed on to prices. In fact, recent inflation has seen wages lag far behind prices. Professor Fels’ report examined a broad suite of industries, including banks, wholesale electricity and retail pricing, early childhood education and care, supermarkets and electric vehicles.
His report found that:
• corporate profits have added significantly to inflation, and many businesses have too much power over their customers, their supply chain and their workers
• many businesses are resorting to dodgy price practices
• a range of sectors are insufficiently competitive or insufficiently regulated, leading to poor consumer outcomes and higher prices.
“My conclusion is that Australians are paying prices that are too high, too often. The cause is weak and ineffective competition in too many markets,” Professor Fels said. “The fact is that a monopoly or dominant firm is free to charge as high a price as it likes.”
WEAK GOVERNMENT OVERSIGHT
Professor Fels made strong criticisms of companies in the supermarket, banking, airline and electricity sectors. He also criticised weak regulatory oversight of these sectors. “There is a serious policy gap on prices,” he said. He cited research done by Professor Lynne Chester at Sydney University, which found electricity consumers pay an extra 20 per cent relative to prices charged to large business customers, which were “not accounted for by genuine cost differences”.
For gas, home consumers were paying 35 per cent more than big business customers. “The public needs a please explain,” Professor Fels said. The report also focused heavily on the supermarket sector, which it described as among the “most concentrated in the world”. It found that the duopoly of Coles and Woolworths were able to increase profit margins in their food and grocery segments during the inflationary period because of low competition and their ability to avoid passing on wholesale cost reductions to shoppers. “When calculated together, her bills had risen by an estimated total of $8700 in one year. Her wage had risen by just $102 in the same period.” – Professor Allan Fels
Consumers are not the only losers due to this concentrated market power in the supermarket sector – it is also exercised over farmers and many other suppliers.
The inquiry also found:
• a lack of competition in banking, leading to a recommendation that account numbers should be as portable as mobile telephone numbers, so customers can switch
• the price of electric vehicles in Australia is excessively high because of unwarranted import restrictions
• there are policies that make it difficult for a third major airline to compete with Qantas and Virgin on domestic routes.
SERIOUS PRESSURE ON WORKING PEOPLE
Professor Fels said he was “pleased to be doing this inquiry with the ACTU because the focus is on the effect of prices on ordinary people. We have been flooded by submissions – some 750 of them”. One testimony in particular left a mark on him – from Danielle, a nurse. “She has many years’ experience in her field.
She works full time. But she was considering getting a second job just to make ends meet because of the large price hikes in her bills,” he said. “She told me of the forty per cent increase in her home insurance premium, despite the fact she had never made a claim. “When calculated together, her bills had risen by an estimated total of $8700 in one year. Her wage had risen by just $102 in the same period. “She told me about the spending compromises she now made every single day.
She told me that there have been times when she has skipped meals or lived off toast. She told me about wearing shoes with holes in them for extended periods because she could not afford to replace them.”
Commenting on the report, economist John Quiggins said uncompetitive markets “have mostly got worse over time, particularly as public infrastructure services have been sold off to private monopolies”.
“In the case of infrastructure utilities, the remedy in most cases is to abandon the failed experiments of privatisation and corporatisation, and return to public ownership,” he said. “Ideally, this would involve a statutory authority model in which the objective is to maximise social benefits rather than profits, while setting prices sufficient to cover operating and capital costs.” ACTU Secretary, Sally McManus, welcomed the report and thanked Professor Fels for “his deep and considered look at pricing in our economy”.
“The inquiry itself already had a significant impact by shining a light on pricing practices that rip off ordinary people, such as those used by supermarkets. We are glad the inquiry’s findings and process played a part in the Treasurer’s recent referral of the supermarkets to the ACCC,” she said.