Introduction
5.1
Recent years have seen a rapid growth in internet commerce and the entrance of new technologies that have disrupted a number of existing markets. The Department of Industry, Innovation and Science (DIIS) suggested that it would be counter-productive for governments to attempt to stop these trends, stating that ‘attempts to slow disruptive change will make Australians worse off.’
5.2
CSIRO’s Data61 research group (Data61) suggested that there ‘is a significant role for government in accelerating the digital transition of the Australian economy’. The DIIS described the key elements of this role as promoting a competitive business environment and supporting business to take advantage of new technologies by being innovative and digitally literate.
5.3
This chapter outlines current government programs aimed at business interaction in the digital economy, the role of government in regulating internet competition, relevant taxation issues, the innovation system in Australia, and other regulatory issues.
Review of the Evidence
Current Government Programs
5.4
Released in December 2015, the government’s National Innovation and Science Agenda is designed to develop a ‘more innovative and entrepreneurial economy’. The Agenda involves an initial investment of $1.1 billion over four years and is based on four pillars: culture and capital; collaboration; talent and skills; and government as an exemplar. A number of initiatives within the Agenda are targeted at assisting Australian businesses, including start-ups and entrepreneurs.
5.5
The Cooperative Research Centres program, administered by AusIndustry, is a long-standing program which: ‘aims to foster high quality research to solve industry-identified problems’ through ‘collaborative research partnerships between industry entities and research organisations’. The program provides grants for up to 10 years for collaborations to support this aim. Collaborations can be international, however must have at least one Australian industry organisation and one Australian research organisation.
5.6
Other initiatives delivered within the Industry, Innovation and Science portfolio include various online platforms administered by CSIRO. Data 61’s ‘Ribit’ is one such platform that connects students with digital, STEM, research and business skills to innovative companies and startups requiring these skills. Similarly, Data61’s ‘Expert Connect’ was created to provide a service for individuals or organisations to discover and connect with Australian experts in their field of interest. Expert Connect provides a ‘mechanism to go in with a specific challenge or problem and … find the people with the specific capability.’ CSIRO also offers a program called ‘SME Connect’ which includes a series of dollar-matched funding and support programs to link Australian SMEs with research organisations, to provide access to expertise and facilities.
Regulating Internet Business
5.7
The speed with which technological change can disrupt existing markets is a significant challenge for regulators. The Australian Institute of Performance Sciences stated that regulation will need to be increasingly agile and :
… strike a balance, ensuring Australian businesses have a level playing field with internationally based competition, and ensuring Australian consumers are given appropriate protections. The speed and complexity of technology‑enabled change will challenge existing regulatory development practices’.
5.8
The DIIS stated that where a regulatory model faces rapid disruption from a new market entrant, the Government is:
… effectively left with two models, one would be to try and stop the new innovation and reinforce the current regulatory model. The other one is to adapt and change and I think the experience around the world has been that some kind of ‘adapt and change’ is where you inevitably end up.
5.9
The Australian Retailers Association (ARA) stated that the opening of the Australian retail sector to global competition had ‘exposed many legacy regulations, laws and flaws that legislators and regulators must address’. The ARA added that many of the regulations in Australia do not ‘exist anywhere else [and are] creating additional costs for the [retail] sector’.
5.10
As an example, the ARA highlighted Australian regulations that require clothing to be labelled at the collar rather than on the left hand side of the clothing. This results in Australian businesses needing to separately label clothing for the Australian and international markets.
5.11
In a report commissioned by eBay, Deloitte Access Economics (Deloitte) warned of the potential negative impacts that that over-regulation of digital platforms could have on small businesses. Deloitte stated:
The regulation of digital platforms needs to be considered very carefully because of the dynamic nature of digital business, and weighed up against how constraints on platforms may reduce their role in helping small business grow.
5.12
In contrast, the Australian Booksellers Association (ABA) suggested that global internet retailers rely on being disruptive and look for an advantage by actively seeking legislative loopholes. To help ensure that internet retailers comply with Australian law the ABA recommended that additional support be provide to State and Federal Small Business Commissioners.
5.13
Professor Marek Kowalkiewicz called for governments to act more proactively in the digital economy and suggested that ‘tiger teams’ be established to proactively investigate regulatory options. These tiger teams would explore emerging technologies and the potential regulatory impacts prior to disruptive new businesses entering the market.
5.14
Professor Kowalkiewicz also recommended that governments, particularly local governments, should more actively play a partnership role with potential high-growth firms. For example a government could invite a firm into its procurement processes or act as the first customer of a firm.
Jurisdiction of Australian Law
5.15
The Australian Competition and Consumer Commission (ACCC) reported that for approximately 25 years it has been dealing with technology companies disputing the jurisdiction of Australian law to regulate their activities. The ACCC reported that it had, in the past, won legal disputes with Visa International relating to jurisdiction, and, more recently it had successfully taken Valve, an online supplier of computer games, to the Federal Court.
5.16
The ACCC described its position on the jurisdiction of Australian law by stating that it takes ‘a very, very strong view that , if you’re accepting money from Australian consumers … if you’re engaging in business in Australia, then you have to comply with Australian law.’
Treatment of Digital Products under Australian Law
5.17
Dr Benjamin Hayward drew attention to the classification of digital products under Australian Consumer Law. Dr Hayward commented that digital products are not subject to the same legal obligations as physical goods under Australian Consumer Law. Dr Hayward stated that:
Australian businesses dealing in physical goods, competing with global internet-based businesses dealing in equivalent digital products, are subject to additional regulatory costs, and are therefore at a competitive disadvantage.
5.18
Dr Hayward stated that under Australian Consumer Law the sale of computer software is considered to be a sale of goods regardless of whether the software is located on a physically tangible object (such as a CD) or digitally downloaded from the internet. Other digital products such as e‑books and digital music, however, are not considered as goods under Australian Consumer Law.
5.19
Dr Hayward drew attention to the recent court case of ACCC v Valve Corp (discussed above). In this case Justice Edelman ruled that a computer game consists of software (a good) as well as other assets, such as music and image files, ‘which accompanied, and was incidental to, the computer software [and] was not a good although it is hard to see how it could be decoupled from the computer software.’
5.20
Dr Hayward recommended that the definition of goods in Australian Consumer Law be amended to include computer software and other types of digital products.
Taxation Issues
Business Tax Rates
5.21
The ARA suggested that Australia’s company tax rates were making it difficult for Australian businesses to compete with overseas retailers. The ARA stated:
It’s impossible for retailers to compete fairly against companies which operate out of lower tax jurisdictions, as the higher cost and regulatory burden hampers reinvestment and innovation … The simple truth is high tax rates are driving investment and profit overseas and there is nothing government can do to stop it without further harming the economy, other than have a competitive tax rate.
5.22
The National Retail Association (NRA) and NORA explained further the impact that company tax rates have on the competitiveness of Australian businesses, stating:
Lower tax rates in competitor jurisdictions overseas mean that rival businesses can retain the same level of net income from a lower profit margin. This in turn means that they can charge lower prices for their goods, giving them a competitive advantage over Australian businesses.
GST on Imported Products
5.23
Currently goods costing under $1000 imported from overseas are exempt from paying GST. On 21 June 2017, the Treasury Laws Amendment (GST Low Value Goods) Bill 2017, which will remove this exemption, was passed. The Treasury advised that from 1 July 2018 the GST will apply to goods costing under $1000 which are imported from overseas.
5.24
Businesses with an annual turnover of more than $75 000 will be required to charge GST on the sale of low value imported goods. Digital platforms (such as eBay and Amazon) will be treated as the supplier of goods for taxation purposes and therefore be required to charge GST on products imported using their platforms.
5.25
The DIIS stated that the change would ‘level the playing field for Australian sellers who are required to pay GST on the goods they sell locally’.
5.26
The ABA supported the implementation of the legislation ‘as soon as possible’ and explained why the change was significant for Australian retailers, stating:
Until 1 July 2018, offshore providers get an automatic 10 per cent ‘discount’ on retail prices by not having to pay GST on purchases of less than $1000. This is unfair, inequitable, and has created a significant black hole in the Australian economy over the past 17 years.
5.27
Following the passing of the Treasury Laws Amendment (GST Low Value Goods) Bill 2017 the Productivity Commission (PC) conducted an inquiry to consider the most appropriate model for the collection of GST on low value products. The model included in the legislation, known as the ‘vendor collection model’, requires that overseas suppliers ‘that make sales of more than $75 000 to consumers in Australia each year would be required to register for and collect GST.’ The PC considered other potential collection models, in particular two ‘transporter models’ that require the agent delivering the goods to collect the GST.
5.28
The PC considered the legislated vendor collection model to be the ‘most feasible among the imperfect alternatives at this time’. The PC stated this was because the revenue obtained would outweigh the administrative and compliance costs and it would avoid major disruption to consumers importing goods.
5.29
The ARA acknowledged that the vendor collection model is the ‘quickest and easiest to implement’ but was concerned that ‘loopholes will continue and capture rates will remain low’. The ARA stated that Australian retailers will remain at a competitive disadvantage with ‘overseas retailers who market products to Australian consumers if loopholes and exemptions remain low’.
5.30
The ARA instead recommended the implementation of the ‘modernised transporter model’ which would require transporters and postal services to take responsibility for taxes and duties on the products they are transporting. The ARA suggested that the modernised transporter model would allow the Australian Government to collect GST on 95 per cent of low value goods entering Australia as opposed to just 50 per cent under the vendor collection model.
5.31
Deloitte also expressed concerns with the implementation of the vendor collection model, in particular relating to the treatment of digital platforms as the suppliers of the goods being imported into Australia. Deloitte stated that:
…if platforms do not hold or process the goods or services, or process transactions, they may be unable to collect the GST on behalf of the government.
5.32
The PC stated that as transporter collection models do not place ‘the liability for assessing and collecting the GST on entities outside of Australia’s legal jurisdiction … [they] are likely to achieve higher compliance and collection rates than the legislated model.
5.33
Despite this, the PC did not recommend the implementation of a transporter collection model due ‘higher administrative and compliance burden’. This compliance burden was due to ‘the legacy paper-based declaration processes still in operation for most goods sent by international mail’. The PC added that the modernised transporter model would also require Australia Post to ‘negotiate agreements with overseas postal operators to facilitate collection’.
5.34
The Treasury also advised that the Australian Taxation Office (ATO) has undertaken a ‘considerable international awareness campaign’ and expected that major suppliers will comply with the changes ‘in order to protect their brand and reputation’. The Treasury also added that the ATO is ‘equipped with a range of tools to pursue companies that do not comply’.
Tax Avoidance among Global Internet-Based Companies
5.35
A number of inquiry participants raised concerns about the quantity of tax paid by global internet-based retailers selling goods and services to Australian consumers. The ABA stated that ‘global internet-based retailers have rarely, if ever, disclosed a taxable profit’. The ABA further stated that law enforcement regimes must be in place to ensure that global businesses operating in Australia:
… do not use ‘transfer pricing’ laws to send money that should be going to the Australian Tax Office to their overseas companies in low tax collecting countries. The current legislative efforts of Government are a good step in the right direction but there is a lot more work to be done.
5.36
The Accommodation Association of Australia (AAA) suggested that Airbnb has ‘constantly dodged questions about how much tax it pays in total in Australia.’ Similarly, the AAA suggested that the two big online travel agents, Priceline and Expedia, pay ‘little or no tax in Australia’. The AAA estimated that, in the case of the online travel agencies, $400 million to $450 million was leaving Australia untaxed each year.
5.37
The Treasury reported that Australia had played a leading role in the development of a G20/OECD action plan to address multinational tax avoidance. The Treasury advised that in the wake of the global action plan Australia had enacted laws to ensure that: Australia’s transfer pricing rules were consistent with other countries; multinationals report to the ATO the income they earn and the tax they pay for each country in which they operate; the GST will be extended to imported digital products.
5.38
The Treasury advised that the Australian Government has also introduced other measures to address multinational tax avoidance including: a Diverted Profits Tax, which introduces a ‘new 40 per cent penalty rate of tax to apply to multinationals avoiding tax by diverting profits offshore’; and a Tax Avoidance Taskforce to ‘strengthen the ATO’s capacity to identify and crack down on tax avoidance by large corporates, multinationals, and high wealth individuals’.
Other Tax Issues
5.39
Responsible Wagering Australia (RWA) drew attention to a new point‑of‑consumption tax (POCT) on online gambling in South Australia. The RWA suggested that the combination of the POCT, the GST, and other fees paid to sport and racing bodies, results in an effective tax burden exceeding 40 per cent of revenue. The RWA stated the offshore online gambling providers were not subject to these costs and this made it difficult for Australian-licensed operators to compete.
Power of Digital Platforms
Digital Platforms and Competition
5.40
The ACCC commented that digital platforms allow small businesses to access consumers in markets that otherwise would be difficult and costly to access. The ACCC reported that many of the small businesses it engaged with considered maintaining a presence on a digital platform to be an ‘essential component of their marketing to potential consumers’.
5.41
The ACCC suggested that there is a ‘network effect’ with online businesses where a platform becomes more valuable to users as more people use the platform. Popular platforms can therefore exert significant market power.
5.42
Professor Marek Kowalkiewicz expanded on this idea by stating that there is beginning to be an:
… emergence of monopolies among online marketplaces. If it’s not winner takes all, then it’s a few winners in the marketplace … there is a particular type of dependency being created between the … participants of the market and the owners and operators of the marketplace.
5.43
The ACCC observed that in some instances digital platforms have been able to increase their margins due to limited competition.
5.44
The ACCC stated that it undertakes monitoring to ensure that platforms are not misusing their market power and that there are not inappropriate barriers preventing other companies entering the market.
5.45
The Australian Small Business and Family Enterprise Ombudsman stated that ‘as the number of global internet-based businesses increases and they continue to disrupt established markets, they cement their market dominance through favourable contract terms, market practices, and payment times.’
5.46
Professor Kowalkiewicz suggested that there are also new competition issues that are just beginning to emerge, for example:
… self-replenishing fridges that many Australians will soon have that might prefer particular brands. This is, without a doubt, a space for the government to look into and try to understand whether there is equity in terms of access to the market.
5.47
Data61 emphasised the importance of small businesses having access to the data that digital platforms collect and that it is not ‘locked up in that [digital platform] so that we don’t end up in situations where there are de facto monopolies and the only route to market is through a single marketplace’.
5.48
The DIIS highlighted recent research by the Grattan Institute that found that in most sectors of the Australian economy there were low barriers of entry and businesses were making normal (rather than supernormal) profits. The DIIS, however, noted that United States regulators were looking closely at whether the big technology companies had too much market power and there was debate about whether a ‘new era’ of anti-trust regulations was warranted.
5.49
The NSW Small Business Commissioner suggested that the Government should review anti-competition legislation to ‘ensure there is no gap which can be exploited or which allows anti-competitive behaviour’.
5.50
The Treasury stated that an independent review of competition policy was recently led by Professor Ian Harper. Following the review, the Competition and Consumer Amendment (Misuse of Market Power) Act 2017 was introduced to prevent the misuse of market power by large businesses. The ACCC suggested that this amendment will provide it with ‘effective mechanisms to address anti-competitive conduct by global internet based competitors affecting markets in Australia’.
5.51
The ACCC advised that actions that may contravene consumer protections against misleading and deceptive conduct can be very different online and in the physical world. The ACCC highlighted the power that comparison websites, ratings, and reviews have in influencing consumer decisions. The ACCC stated that comparison websites should be transparent about whether they are comparing across the market or just businesses with which they are aligned.
5.52
The ACCC suggested that if consumer ratings are distorted, for example if negative ratings are not shown, this could be misleading or deceptive conduct. The ACCC advised that it was successful in court proceedings taken against the accommodation provider Meriton which was found to have been distorting the TripAdvisor ratings and reviews about their accommodation services.
5.53
The ACCC also reported that platforms are beginning to play a role in educating businesses about Australian law and monitoring their compliance.
Unfair Contract Provisions
5.54
The Australian Small Business and Family Enterprise Ombudsman stated that unfair contract terms legislation provides ‘some level of protection for small businesses although the matter still has to go to court for a ruling to determine if a term is unfair’.
5.55
The AAA stated that its most serious concern in relation to internet competition is that its members cannot set their own room rates due to the rules insisted upon by online travel agencies (OTA). The two largest OTAs, the Priceline Group (which includes Booking.com) and Expedia, insist upon ‘price parity’ clauses that prohibit hotels and motels from advertising a room rate which is lower than the rate provided on the OTA website.
5.56
In September 2016, the ACCC reached an agreement with Expedia and Booking.com to make amendments to the price parity clauses in their contracts with Australian accommodation providers.
5.57
As a result of this agreement accommodation providers can provide room rates that are lower than those available on the OTA site to customers who walk in or phone the accommodation provider. Accommodation providers are still restricted from advertising a lower price online, including on their own websites. The AAA stated that:
Given the internet accounts for more than 80 per cent of all bookings made in accommodation businesses in Australia today and internet booking were not part of the (secret) deal between the ACCC and the global online travel agencies [the agreement] has had little or no impact on the behaviour of Expedia and Priceline.
5.58
The AAA suggested that, despite OTAs advertising that they have the lowest prices, in reality price parity clauses were ‘hindering consumers from accessing lower room rates’. The AAA provided an example of a room that is advertised at $200 on Expedia or Booking.com. If the room is booked on the OTA site then the online travel agency receives $40 as a commission. If a customer could instead book the room on the hotels own website for $180 this could result in both the customer and the hotel being $20 better off.
5.59
The AAA added that if a hotel offers a better price on its own website the travel agency may ‘darken’ the hotel which means they are placed at the very bottom of search results. The AAA reported that if a hotel is darkened they can lose 30 per cent of their business.
5.60
The Australian Small Business and Family Enterprise Ombudsman reported that an accommodation provider had attempted to negotiate a better contract with an OTA but had been told to ‘take it or leave it’ and threatened with legal action.
5.61
The ACCC advised that it is continuing to investigate the operations of OTAs and in particular whether price parity laws were anti-competitive. The ACCC also stated that it had a range of tools it could use to make these organisations change their rules if necessary.
Promoting Innovation and Providing Information to Local Businesses
5.62
The ARA stated that ‘Australian retailers have been slow to innovate’ and suggested that internet competition was placing pressure on local retailers, ‘which hinders their ability to re-invest in innovation’. As an example of the potential dangers of neglecting innovation, the ARA highlighted Belgium where many local consumers now use foreign websites due to the Belgian retail sector being slow in adopting e-commerce.
5.63
The ARA called for the government to assist ‘small businesses to create e‑commerce platforms and help to develop IT and marketing expertise’. The ABA suggested that without ‘government action, innovation and support Australian booksellers like many Australian small businesses run the risk of being overwhelmed by global internet based competition’.
5.64
Data61 highlighted artificial intelligence (AI) as a rapidly advancing technology that will have ‘profound implications for industry, economy, and society’. Data61 suggested that Australia must stay at the forefront of AI capability and that AI will enable ‘new industries, security and a higher quality of life’.
Funding Research and Development
5.65
The Australian Government’s primary mechanism for supporting business innovation is the Research and Development (R&D) Tax Incentive. A 2016 review of the R&D Tax Incentive found that it supported $19.5 billion of research and development at a cost to government of $2.95 billion.
5.66
Data61 advised that Amazon ‘invests more in digital R&D than Australia’s public and private sector combined’. Australia’s total spending on R&D was $32 billion per year but digital R&D represents ‘only a fraction of this amount’. By comparison, Amazon invested just under $23 billion on R&D over the 12 months to March 2017.
5.67
Data61 added that the arrival of Amazon with its ‘massive expenditure on R&D’ and sophisticated tools such as Alexa leaves Australian businesses vulnerable. In Data61’s view, Amazon will not necessarily use these tools in the interests of Australian businesses but rather ‘competitively, in their own interests, and we will lose our understanding of the data algorithms and the artificial intelligence – what’s going on behind the scenes’.
5.68
Data61 stated that ‘industry needs to take the lead’ in funding R&D but that many valuable breakthroughs are the products of 10 to 15 years of research. Government support, therefore, is needed where the market cannot or will not fund such long-term research.
5.69
The ABA recommended that the government should promote digital innovation in retail businesses by providing ‘innovation grants, tax benefits or low-interest loans for businesses wishing to develop e-commerce on their website’.
5.70
Data61 recommended new debt-finance funding for high growth small business that addressed the ‘gap between a venture capital firm that will fund a very narrow class of small business and a bank that may be completely risk averse’. Data61 also recommended that there further financial incentives ‘for high-growth firms, with incentives to reinvest those funds back into R&D and drive growth’.
Innovation and Collaboration in Small Business
5.71
The Ai Group stated that ‘innovation has never been so important for Australian businesses, as they confront fierce global competition and rapidly changing markets and consumer preferences’.
5.72
The Ai Group added that it was difficult for SMEs to acquire the knowledge and skills to effectively innovate and therefore undertaking innovation in collaboration with other organisations was beneficial. The Ai Group described the benefits of collaboration as including: ‘increased comfort with risk taking; exposure to new approaches; potential for specialisation; reduction in costs and time to market; and increased persistence of innovation’.
5.73
Data61 suggested that many small businesses are not engaging in innovation to develop new products and commented that many SMEs did not know how to engage research institutes in collaborative innovation projects. Professor Marek Kowalkiewicz suggested that, in particular, small businesses in regional and rural areas were not aware of opportunities to collaborate with universities.
5.74
Professor Kowalkiewicz added that the current framework for collaboration and budget constraints both at universities and among businesses often make it difficult for university researchers to collaborate with small businesses.
Providing Information to Small Business
5.75
The DIIS acknowledged that not all Australian businesses are well placed to take advantage of the opportunities in the digital economy. The DIIS therefore stated that it is ‘important that the Australian Government play a role in lifting business capabilities and innovation where market failures exist’. In November 2017, the government established the Small Business Digital Taskforce, which aims ‘to ensure that more Australian small businesses can thrive in an increasingly digital economy’.
5.76
The DIIS stated that it hoped that the taskforce would be able to provide insights into the challenges faced by small business. Additionally, the DIIS hope that the taskforce will act as vehicle to convey information relating to what the government can offer small businesses to help them build their digital capacity.
5.77
Professor Kowalkiewicz suggested that many businesses appreciate the government sharing the success stories of innovative Australian businesses and that the more the government talks about these cases the ‘better the culture and the more the focus on growth’.
5.78
Professor Kowalkiewicz also suggested that governments should help business to understand the impact of emerging technologies and ‘what it might mean for them and what they might need to do’.
Other Regulatory Issues
5.79
The NRA and NORA described selling products to international tourists visiting Australia as ‘one area in which Australian retailers have an advantage over foreign internet businesses’. In the view of the NRA and NORA retailers were not able to fully capitalise on this advantage due to the ‘complicated nature of the Tourist Refund Scheme’. The NRA and NORA recommended that the scheme should be opened to private refund providers as this could ‘drive new and innovative shopping arrangements for international visitors to Australia’.
Postage and Logistics
5.80
The ABA raised concerns that overseas retailers may be receiving a competitive advantage in shipping costs due to Australia’s membership of a long-term postal treaty as part of the Universal Postal Union. The ABA explained that because of the treaty if the Book Depository ships a book to Australia it is able to charge Australia Post, as opposed to the customer, for the cost of shipping.
5.81
The ABA stated that it believed the costs to Australia Post to deliver international packages to be in the vicinity of $300 to $400 million. The ABA stated that Australian small businesses were ‘effectively subsidising the Australian freight cost for large businesses’.
Planning and Local Government Regulations
5.82
The AAA highlighted that its members deal with substantial ‘red tape’ related to local government regulations. In contrast, the AAA drew attention to the lack of regulation applied to accommodation offered via the Airbnb platform. The AAA stated that Airbnb is:
… facilitating non-compliant accommodation … its properties do not meet the same standards that our members have to meet for building and fire safety. They don’t have insurance coverage, they do not comply with planning laws, and they are not providing disability access. This is not a level playing field.
5.83
The Australian Small Business and Family Enterprise Ombudsman added that traditional accommodation providers pay commercial council rates whereas sharing economy providers only pay residential rates. This is despite approximately 35 per cent of the accommodation listed on Airbnb being ‘commercial operators that lease out property all year round, and have investment properties designed specifically for the sharing economy.’
Committee View
5.84
Online shopping has grown rapidly in recent years and it unlikely that this growth trend will cease anytime in the near future. Similarly, increased internet connectivity has enabled the growth of many new, and often disruptive, apps and digital platforms.
5.85
Governments cannot stop these trends. Neither should they try, as the digital economy is likely to benefit Australians overall.
5.86
The role of government is, therefore, to ensure that the digital economy has a level playing field and that Australian businesses are equipped with the skills and technologies to take advantage of emerging opportunities.
5.87
The Committee recommends that the Department of Industry, Innovation and Science continue to take an active role in preparing Australian business to compete in the digital economy. The department is currently developing the government’s Digital Economy Strategy and the Committee recommends that as part of the strategy the department develop education materials aimed at small business. These materials should help small business owners and managers, most of whom are time poor, to evaluate how emerging technologies and popular digital platforms might affect their business.
5.88
These education materials should also include information to help Australian businesses strengthen the protection of their data by improving data security processes and adopting appropriate cybersecurity technologies. The importance of cybersecurity and the serious impact that a data breach can have on a small business is discussed further in Chapters 2 and 3.
5.89
The growing influence in the Australian market of retailers operating from overseas makes the regulatory task faced by governments more complex. The Committee was pleased to hear, therefore, that it is the Australian Competition and Consumer Commission’s strong view that all companies operating in Australia, regardless of where they are based, must comply with Australian law.
5.90
A primary focus of this Inquiry was the effects of increased internet competition on Australian retailers. There is also increasing concern, however, that a lack of competition between internet based businesses could lead to negative impacts in some industry sectors.
5.91
In some industries, one or two digital platforms are beginning to dominate the market. There is a risk that monopolies or duopolies could form and potentially distort the market. For example, two companies have come to dominate the market for making accommodation bookings. As they have increased their market power they have also rapidly increased the commissions they charge accommodation providers placing pressure on many Australian businesses.
5.92
In addition, these two companies insist on accommodation providers signing contracts with price parity clauses that do not allow the providers to advertise lower room prices on their own websites. These clauses are a source of significant frustration for many small hotels and motels. Due to the power of the online travel agencies, however, they have no choice but to sign the contracts. The Committee does not see any benefit for Australian consumers or businesses from the use of these price parity clauses.
5.93
The Committee also heard that in its operations overseas Amazon has used data collected on small businesses using its Amazon Marketplace platform to directly compete with these businesses. The Committee does not believe that it is appropriate for digital platforms to use data collected on small businesses in any way that is detrimental to these businesses’ operations.
5.94
The Committee notes the work undertaken in 2015 by the Harper Review into competition policy. The Committee also welcomes the introduction of legislation last year to prevent the misuse of market power by internet based businesses. Nevertheless, as the example of Uber transforming the taxi market in a matter of months shows, internet businesses can create rapid and unforeseen change. Governments must remain vigilant to ensure that digital disruption does not result in internet based businesses gaining an unfair advantage over existing businesses.
5.95
The exemption from GST for low-value imports is an example of a regulation that has unintentionally benefitted overseas businesses at the expense of Australian businesses. The Committee is pleased this loophole will soon be closed and urges the government to ensure that there is no delay in implementing the change. As internet competition grows ensuring that regulation does not unintentionally put Australian businesses at a competitive disadvantage will become increasingly important.
5.96
The Committee recommends that the Australian Government should consider future reform of competition law in light of the potential impact of digital retail platforms, taking into account the way major tech firms collect, use and monetize data in possibly anti-competitive ways.
5.97
The Committee recommends that the Department of Industry, Innovation and Science, in partnership with relevant industry associations and educational institutions, develop education materials aimed at encouraging small business to participate in the digital economy. These materials should aim to:
Provide small business with relevant and accessible information on key emerging technologies and opportunities to collaborate with universities;
Assist small business to understand the potential risks and benefits of using digital platforms and how to access and use the data created when using digital platforms;
Assist small businesses to protect their data through improvements to cybersecurity technologies and processes; and
Promote the examples of diverse Australian companies who have grown their business through successful digital engagement.
5.98
The Committee recommends that the Department of Industry, Innovation and Science ensure that legislative and regulatory changes to industry policy keep the following principles in mind:
Digital platforms should not engage in monopolistic or anti‑competitive practices;
Regulatory settings should not create loopholes or exemptions that provide internet-based companies a competitive advantage over Australian local businesses;
Australian consumers and businesses should be able to easily access data collected on them by digital platforms.
5.99
Hon Barnaby Joyce MP