Bills Digest No. 144  1999-2000A New Tax System (Trade Practices Amendment) Bill 2000


Numerical Index | Alphabetical Index

WARNING:
This Digest was prepared for debate. It reflects the legislation as introduced and does not canvass subsequent amendments. This Digest does not have any official legal status. Other sources should be consulted to determine the subsequent official status of the Bill.

CONTENTS

Passage History
Purpose
Background
Main Provisions
Concluding Comments
Endnotes
Contact Officer & Copyright Details

Passage History

A New Tax System (Trade Practices Amendment) Bill 2000

Date Introduced: 16 March 2000

House: House of Representatives

Portfolio: Treasury

Commencement: Schedule 1 which contains amendments related to the New Tax System commences on Assent. Likewise, item 3 of Schedule 2 commences on Assent. Item 1 of Schedule 2 is deemed to have commenced at the same time as Part 3 of the Competition Policy Reform Act 1995 (ie 6 November 1995). Item 2 of Schedule 2 is deemed to have commenced when the Trade Practices Amendment (Industry Access Codes) Act 1997 commenced (ie 10 April 1997).

Purpose

The Bill proposes to insert a new provision into the Trade Practices Act 1974 (TPA) that will prohibit conduct in connection with the supply of goods or services, that falsely represents, or misleads or deceives a person about the effect of the new tax system changes.

The Bill also amends Part IIIA of the Trade Practices Act to ensure that access undertakings are within the Commonwealth's constitutional power. These amendments are not related to the new tax system.

Background

Part VB of the Trade Practices Act

In 1999 the Parliament passed amendments to the Trade Practices Act(1) inserting a new Part VB which:

  • prohibits corporations charging unreasonably high prices (price exploitation) for the supply of goods having regard to the New Tax System changes, and
  • empowers the Australian Competition and Consumer Commission (ACCC) to monitor prices for a period of 1 year before and 2 years after the implementation of the GST.

The legislation also introduced the New Tax System Price Exploitation Code (Part XIAA of the TPA). Due to limitations in the Commonwealth's power, all jurisdictions (except the ACT(2)) have implemented a uniform New Tax System Price Exploitation Code (the schedule or personalised version of Part VB). The state legislation essentially gives the ACCC the same powers and functions as Part VB, but in respect of persons rather corporations.

The intention of the legislation is to prevent profiteering on the tax changes either by failing to pass on cost reductions that result from the removal of wholesale sales tax or by increasing the price of a good by more than the actual price effect of the GST on an item.

This Bill seeks to extend the scope of the regulatory regime in Part VB to cover misrepresentation about the effect of tax changes during the transition to the New Tax System. Examples of the type of conduct that may potentially be captured include:

  • claims that a consumer is required to pay an amount for GST when in fact the obligation does not take effect until 1 July 2000; or
  • advertisements which encourage consumers to buy goods or services now in order to 'beat the GST' when prices may fall rather than rise under the New Tax System.

Access Undertakings

Part IIIA of the TPA was inserted by the Competition Policy Reform Act 1995. The part establishes a legal regime to promote access to the services of facilities of national significance for example, electricity grids. Access to essential services may be achieved in two ways. The National Competition Council (NCC) may 'declare' a facility or alternatively, a service provider may give an access undertaking to the ACCC specifying the terms on which access will be made available to third parties. The Bill contains amendments that seek to clarify the nature of the ACCC's functions and powers in relation to undertakings and define the types of undertakings that the ACCC can accept.

Main Provisions

Schedule 1

The major amendment in Schedule 1 is the introduction of proposed section 75AYA. The new section prohibits a corporation, in trade or commerce from engaging in conduct which:

  • falsely represents (whether expressly or impliedly) the effect or likely effect of all or any of the New Tax System changes, or
  • misleads or deceives or is likely to mislead or deceive a person about the effect, or likely effect, or all or any of the New Tax System changes.

The prohibition only applies where a corporation engages in such conduct in connection with:

  • the supply or possible supply of goods or services, or
  • the promotion of the supply or use of goods and services.

Furthermore the prohibition is subject to a 'sunset provision'. It will cease to apply at the end of the 'new tax system transition period'. This term is defined by section 75AT of the TPA to be 2 years after the GST implementation date.

The ambit of the section is also determined by the term 'New Tax System changes' which is defined in section 75AT and by regulation. Currently it includes:

  • the reduction in the Wholesale Sales Tax rate of 32 per cent to 22 per cent for certain goods
  • changes to excise on tobacco products
  • the introduction of the GST
  • the abolition of Wholesale Sales Tax, and
  • the introduction of a Luxury Car Tax.(3)

Under amendments proposed by item 4 a contravention of new section 75AYA will under section 76 attract penalties of up to $10 million for a corporation and $500,000 for a person. These penalties are consistent with the existing penalties for price exploitation under Part VB. A contravention of the new prohibition will not be considered to be a criminal offence.(4) Instead section 76 of the Act imposes 'pecuniary penalties'. This term was chosen rather than 'fines' to avoid the need to satisfy a criminal onus of proof in relation to breaches of the Act to which section 76 applies.(5)

Item 3 amends section 75B(1) to ensure that a person who is involved in aiding, abetting or is knowingly concerned with a breach of proposed section 75AYA can be subject to penalty provisions.

Proposed section 76A provides for a defence against an action for a breach of new section 75AYA. The respondent must establish that the contravention was due to

  • a reasonable mistake, or
  • a reasonable reliance on information supplied by another person, or
  • the act or default of another person, to an accident or to some other cause beyond the respondent's control and that the respondent took reasonable precautions and exercised due diligence to avoid the contravention.

Proposed subsection 76A(3) makes clear that for the purposes of establishing the defence 'another person' does not include a servant or agent of the respondent.

Proposed section 76B deals with the situation where the same conduct constitutes a contravention of new section 75AYA and also a criminal offence.

As will be discussed below, conduct breaching proposed section 75AYA might also constitute a breach of Part V section 53(e) of the TPA which prohibits false or misleading representations in relation to prices. A contravention of section 53(e) is an offence. (6)

Proposed subsection 76B(2) provides that the Court may not make a pecuniary penalty order against the person in breach of section 75AYA if the person has already been convicted of an offence involving essentially the same conduct.

Proposed subsection 76B(3) states that proceedings for a pecuniary penalty under section 76 for a breach of section 75AYA are stayed in the event that criminal proceedings commence or have already commenced for an offence involving the same conduct. However, if a pecuniary penalty order has already been made, criminal proceedings for the same conduct may be commenced (proposed subsection 76B(4)).

If an individual gives evidence in a proceeding involving an alleged contravention of section 75AYA, that evidence is not admissible in criminal proceeding concerning substantially the same conduct. This prohibition does not apply in relation to criminal proceedings in respect of false evidence given (ie perjury offences) (proposed subsection 76B(5)).

Items 7 and 8 allow the ACCC to seek an injunction to restrain a breach of new section 75AYA. The Court may grant an injunction if it is satisfied that a person has engaged, or is proposing to engage in conduct that constitutes or would constitute a breach. Only the ACCC has standing to seek such an injunction.

Item 9 amends the price exploitation code to ensure that the amendments cover unincorporated entities. The amendment will only take effect if the States agree. Under section 6 of the Price Exploitation (Name of State) legislation(7) a modification made by Commonwealth law to the price exploitation code does not apply until at least 2 months after the modification, unless a proclamation appoints an earlier date. A State may also issue a proclamation stating that a modification to the code does not apply in that jurisdiction. Under the Western Australian legislation, a Commonwealth modification to the code does not take effect unless it is declared to apply by an order.(8)

According to the Minister for Financial Services and Regulation, all States except Queensland have agreed to adopt the modification to the code.(9)

Schedule 2

The amendments proposed by Schedule 2 are not related to the new tax system. As noted above, Part IIIA of the TPA provides a regime for access to essential facilities. Section 44ZZA allows a service provider (ie the owner of a facility) to set out terms and conditions for providing third parties with access. Such undertakings have been significant in facilitating the introduction of competition in some electricity markets.

At present, subsection 44ZZJ(3) limits the types of undertakings that can be enforced by a Federal Court order. The limitation reflects the scope of the corporations power and trade and commerce power under the Constitution.

However, given that the ACCC exercises powers and performs functions in relation to undertakings (for example, arbitrating disputes) aside from seeking their enforcement by the Court, it is important these ACCC activities are clearly within the ambit of Commonwealth power. To ensure that this is the case item 1 inserts a provision, which governs the terms on which the ACCC may accept an undertaking. The limitation imposed by the new subsection is expressed in similar terms to subsection 44ZZJ(3).(10) Proposed subsection 44ZZA(3) provides that the Commission must not accept an undertaking unless:

  • the provider or proposed provider is a corporation or a joint venture composed only of corporations, or
  • the undertaking provides access only to third parties that are corporations, or
  • the undertaking provides for access that is or would be in the course of, or for the purpose of constitutional trade and commence.

The amendments proposed by item 1 mean that subsection 44ZZJ(3) is redundant because the only undertakings that can be accepted by the ACCC are those which can, under the Constitution, be enforced by the Federal Court. Therefore item 3 repeals subsection 44ZZJ(3).

Subsection 44ZZA(6A) currently states that if an undertaking provides that the Commission must make decisions then the Commission must make decisions in accordance with the undertaking. It is possible that the section may be given a restrictive interpretation because of its focus on 'decisions'. Item 2 seeks to address this issue by repealing the existing subsection and inserting a new provision that gives the ACCC power to perform functions (eg gather information) or exercise powers (eg conduct an arbitration) if the undertaking so provides.

Concluding Comments

The Position of Queensland

The Queensland Government has indicated that it will be not allow the amendments to the price exploitation code to become operative in that State.

Their decision is based upon two principal propositions firstly, that the prohibited conduct is already captured by existing laws and secondly that the Queensland Office of Fair Trading is better placed and better resourced to protect Queenslanders against misrepresentations relating to the new tax system than the ACCC. These arguments will be considered in turn.

The Scope of Existing Laws

The ACCC's GST website(11) makes clear that under the TPA, the Australian Securities And Investment Commission Act 1989 and Fair Trading Acts in the States and Territories business is already obliged not to make misleading or deceptive price claims in relation to the GST.

The ACCC has used existing laws to take enforcement action against companies that have promoted their goods or services by advertising that customers should buy now in order to 'Beat the GST'. For example, enforcement action has been taken in relation to:

  • a real estate company that advertised that it was 'widely believed that the prices of new homes and land were set to increase by up to 15 % as a result of the imposition of the GST;(12)
  • at least three sellers of used cars who ran advertisements calling on consumers to 'beat the taxman today' by purchasing vehicles before the introduction of the GST;(13)
  • a construction company that claimed that the value of its apartments would instantly increase by 10 per cent in July 2000;(14) and
  • a book store that printed on its customer receipts the words:'Books will cost 10 per cent more with a GST'.(15)

The ACCC has also objected to the use of dual ticketing as a marketing tool if it has the potential to mislead consumers.(16) In relation to the transition to the GST, dual ticketing refers to a practice where two prices are displayed in relation to a good or service. One price applies until 30 June 2000 and the other price is to apply from 1 July 2000.

In taking action against such companies the ACCC has principally relied on sections 52, and 53(e) of the Trade Practices Act.(17)

Section 52 prohibits corporations, in trade or commerce from engaging in conduct that is misleading and deceptive or is likely to mislead and deceive. Remedies for breach of this section include damages (which the ACCC may recover on behalf of aggrieved persons) and injunctions. No pecuniary penalties or fines may be imposed.

Section 53(e) prohibits misrepresentation in relation to the price of goods or services. A corporation that breaches this section may be liable for a fine of $220,000 or if a person is involved in the breach (for example by aiding and abetting a breach by a corporation) a fine of $40,000 applies. Damages are also payable.

Both of these sections are also mirrored in State Fair Trading legislation (for example sections 38 and 40(g) of the Fair Trading Act 1989 (Qld)) which applies to persons. State legislation is necessary because Part V of the TPA is based on the Commonwealth's corporations power and as a consequence does not extend to unincorporated entities.

As with section 52 the principal remedy for misleading and deceptive conduct by a person under State fair trading legislation(18) is damages, there are no fines or pecuniary penalties. The fine under Queensland law for a breach of section 40(g) of the Fair Trading Act (the equivalent of s53(e) of the TPA) is $40,500.(19)

Resourcing

The Queensland Minister for Fair Trading, the Hon. Judy Spence has pointed out that the Queensland Office of Fair Trading (QOFT) has power to investigate and prosecute for misrepresentation involving unincorporated entities. The Minister defended the decision not to give affect to the amendments proposed in this Bill on the basis that the QOFT is better resourced than the ACCC and that the Commission would be focused on ensuring compliance by large corporations rather than small business. She stated that:

The ACCC has a grand total of 18 officers in Brisbane and 4 officers in Townsville (including secretarial staff and managers) to handle complaints when the floodgates open...(whereas)...the Office of Fair Trading has an army of officers spread throughout the State; officers with a far superior track record of handling individual complaints.'(20)

In contrast, the Minister for Financial Services and Regulation, the Hon. Joe Hockey, has described the ACCC as 'the national GST watchdog' arguing that it has the expertise, the specialists and 'months of price monitoring and research to ensure that Australian consumers are not being ripped off.' The Government has committed, as part of the
2000-01 budget process, to considering: the resourcing implications to enable the ACCC to carry out the functions and exercise the powers it is given under the amendments to Part VB contained in the Bill.'(21)

Summary

The new prohibition on misrepresenting the effect of the New Tax System changes will capture conduct that is already prohibited by State and Federal legislation. However by imposing penalties that are far stronger than those available under existing law, the proposed new provision does send a strong signal to the business community that misrepresentations involving the effects of these changes are unacceptable. Whether it is appropriate that misrepresentations involving the new tax system should be punished more severely than other misrepresentations is a matter which is open for debate.

If adopted by all States, the Bill would consolidate policing of trade practices matters relating to the New Tax System changes with the ACCC. Of course, the effectiveness of the ACCC in enforcing the new provisions will depend on the Commission receiving adequate funding.

Endnotes

  1. A New Tax System (Trade Practices Amendment) Act 1999.
  2. The ACT government believes that it is unnecessary to legislate because the exploitation code extends to the ACT because of the Commonwealth's use of the Territories power in section 6 of the TPA.
  3. The Government is proposing to extend the definition by regulation to cover a number of other tax changes. See ACCC, Price Exploitation and the New Tax System, March 2000 p. 3.
  4. See item 6.
  5. Miller, R. Miller's Annotated Trade Practices Act 2000, 21st edition, LBC p. 527.
  6. Conduct breaching new section 75AYA may also breach section 52 of the TPA however abreach of section 52 does not amount to an offence (see section 79).
  7. This legislation does not apply in Western Australia.
  8. Section 6, New Tax System Price Exploitation Code (Western Australia) Act 1999.
  9. The Hon. Joe Hockey MP, 'Hockey Slams Queensland ALP on Opposition to GST Rip-Off Law', Press Release, 16 March 2000.
  10. The new subsection is slightly broader in that it provides for partnerships or joint ventures composed wholly of corporations.
  11. http://gst.accc.gov.au/
  12. Australian Competition and Consumer Commission, 'Ray White Real Estate to fix GST representations', Media Releases, 5 November 1999.
  13. Australian Competition and Consumer Commission, 'Used Car Dealer to Fix G.S.T. Advertising' Media Release, 25 November 1999.
  14. Australian Competition and Consumer Commission, 'ACCC alleges GST misrepresentation by Meriton Apartments', Media Release, 9 March 2000.
  15. ABC Radio Transcript of PM Program, 'Gleebooks', 25 May 1999.
  16. Australian Competition and Consumer Commission, 'ACCC issues guidance on price display', Media Release, 9 March 2000. This issue came to prominence in February when
    Big W stores attempted to implement dual pricing.
  17. The ACCC has also relied on section 51A which is intended to facilitate proof in misrepresentation cases involving representation as to future matters. The practical effect of the section is to cast the burden of proof upon the respondent who has made a representation about a future matter to show that they made the representation on the basis of reasonable grounds. See Ting v Blanche (1993) 118 ALR 543 at 552.
  18. For example section 38 of the Fair Trading Act 1989 (Qld).
  19. The level of fines for unincorporated entities involved in breaching the equivalents of section 53(e) under State Fair Trading legislation varies from State to State. In WA, SA and Tasmania the maximum fine is $20,000. In NSW the fine is $22,000, in Victoria it is $24,000.

    The State Fair Trading Acts impose higher penalties on offences committed by corporations. It is likely however that such contraventions will be pursued by the ACCC.

  20. The Hon. Judy Spence MLA, 'Spence rejects Hockey Plan', Media Statement, 16 March 2000.
  21. The Hon. Joe Hockey MP, Second Reading Speech, House of Representatives, Debates, 16 March 2000, p. 14434, March 2000.

Contact Officer and Copyright Details

Mark Tapley
3 April 2000
Bills Digest Service
Information and Research Services

This paper has been prepared for general distribution to Senators and Members of the Australian Parliament. While great care is taken to ensure that the paper is accurate and balanced, the paper is written using information publicly available at the time of production. The views expressed are those of the author and should not be attributed to the Information and Research Services (IRS). Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion. Readers are reminded that the paper is not an official parliamentary or Australian government document.

IRS staff are available to discuss the paper's contents with Senators and Members
and their staff but not with members of the public.

ISSN 1328-8091
© Commonwealth of Australia 2000

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Published by the Department of the Parliamentary Library, 2000.

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