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Napthine takes the reins after Baillieu’s leadership crumbles

Ted Baillieu has resigned as the Victorian premier and been replaced by former Liberal leader Denis Napthine, after the surprise resignation of Frankston MP Geoff Shaw from the Liberal party destabilised the government.
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An ashen-faced Mr Baillieu emerged from a special party-room meeting at the Victorian Parliament on Wednesday night after telling Liberal MPs he had decided to quit ”in the best interests of the government”. Mr Baillieu said he would remain in Parliament as the member for Hawthorn.

”I love this state, I love the Liberal Party, I love this role that I have had the honour to enjoy over the last two-and-a-bit years,” he said at a press conference just before 8pm.

Mr Baillieu said he offered Dr Napthine his full support.

An emotional Mr Baillieu thanked his family and said ”the most important thing is the people of Victoria”.

Within minutes, Dr Napthine returned the compliment, saying Mr Baillieu had put ”his heart and soul” into his role as premier.

”Ted is a great friend and colleague. I’m proud to call him a friend. Ted Baillieu has certainly served the state very well.” Dr Napthine said his appointment was ”an honour and a privilege”.

Mr Shaw had earlier released a statement saying he had quit the Liberal Party because he no longer had faith in Mr Baillieu’s leadership.

”I believe my actions reflect the general loss of confidence Victorians are feeling in the leadership of the government,” he said.

Mr Shaw’s resignation eliminated the Coalition’s one-seat majority and it will now be forced to rely on the controversial MP’s vote to govern.

Mr Shaw is being investigated by police after an Ombudsman’s report found he abused his entitlement to a parliamentary vehicle.

Victorian Opposition Leader Daniel Andrews said Mr Shaw had sacked the premier and the government was beholden to him.

”It would seem that every piece of legislation, everything this government wants to do, will now have to be the product of a negotiation with Geoff Shaw,” he said.

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No high fives in Myer label spat

Myer boss Bernie Brookes has admitted there will be ”a degree of awkwardness” in dealing with designer Kym Ellery if the department store succeeds in a legal bid to force her back into its stable.
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But he seems in no mood to back down from the courtroom stoush, sparked when the 29-year-old designer allegedly broke her exclusivity deal with Myer by signing a deal with rival David Jones.

Ellery’s glamorous frocks were a notable absence as Myer launched its autumn racewear range in front of a roomful of lunching ladies at Melbourne’s Flemington Racecourse on Wednesday.

Last month, DJ’s opened their autumn-winter launch show with one of her designs, draped over the frame of ubermodel Miranda Kerr.

”You’ve got the same person signing an exclusive deal with two department stores,” Brookes said.

”I think people will make their own decision as to the merit of that, but we’re going to pursue this,” he said.

”We’re increasingly confident that we’ve got the very logical case to say that she has to continue to supply us.”

He said the department store had a $1.5 million order with Ellery and wanted the clothes.

”It will be a degree of awkwardness but we funded Kym to go to [US trade event] G’Day LA, we funded her on catwalks, we funded her on a number of events, and we’ve invested to build the brand – and she’s invested in Myer.

”It’s a shame that she came to the extent that she decided to do this, but the relationship … it’s no good saying we’ll all be high-fiving at the end of it.”

The case is set down for trial in the Victorian Supreme Court next month in front of Justice Michael Sifris.Gloves are on

Brookes was speaking after a fashion parade that featured models in racing get-ups that featured extravagant hatinators, including one that looked like a radar dish and another that resembled a leather do-rag.

Racing is both one of Brookes’ passions and a big part of Myer’s promotional strategy.

But the chain has yet to sign a new deal with the Victoria Racing Club to extend its sponsorship of the spring racing carnival, which expired after last year’s Melbourne Cup.

”Over the next week, hopefully, we’ll be in a situation where we’re getting closer and closer to hopefully doing a deal with them [the VRC],” Brookes said. ”The VRC have been tremendous in the early discussions. We’re working in good faith and fingers crossed that we can do a deal over the next few days or the next week.”

It’s an important time of year for Myer – Brookes reckons that last year Myer sold 12,000 pairs of cufflinks and 22,000 hats and fascinators in the nine weeks leading up to the carnival.

”Gloves will be in this year – that’s my only fashion tip,” he said.Time to re-Joyce

Perhaps Gina Rinehart was stewing after being demoted from the position of the world’s richest woman by Forbes magazine. Perhaps she was distracted by the legal stoush with her kids. Whatever the reason, CBD can’t help but notice Her Roy Hill Highness didn’t put as much of her usual heart and soul into her latest column in Australian Resources & Investment Magazine.

Instead, she devoted it to reprinting most of her ”Christmas reading”, a piece from The Spectator Australia by Senator Barnaby ”Barnyard” Joyce.

The line taken by the National Party senator will seem awfully familiar to anyone who has enjoyed Rinehart’s previous efforts.

Come to think of it, has anyone ever seen them in the same room?

Got a tip?

[email protected]上海夜网m.au

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Fortescue fights mine tax

Fortescue Metals and the Queensland and WA governments are in court over the mining tax. Photo: Louie DouvisThe federal government’s mining tax is ”a crude form of control of the states”, Andrew Forrest’s lawyer told the High Court on Wednesday.
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David Jackson, QC, appearing for Andrew Forrest’s Fortescue Metals Group, told the court the tax’s uniform application across the states was unconstitutional because it imposed different tax rates on miners in different states and territories.

This is because the tax is calculated based on how much mining companies pay in mining royalties, which differs across the country.

”One can’t avoid the fact that it is state-based,” he said.

States were being unfairly targeted by the government’s tax, Mr Jackson said, because it eroded their ability to give assistance to, or reduce the royalties paid by, particular mining companies.

”It interferes with their ability to choose what they want to do with their assets,” Mr Jackson said.

The attorneys-general and solicitors-general of Queensland and Western Australia have joined the action. They argue that because mining royalty regimes differed among states before the mining tax took effect on July 1, 2012, the effect of the tax was discriminatory.

Under the constitution, Parliament must not impose taxes in a way that discriminates between states and territories.

The minerals resource rent tax applies a 22½ per cent tax on miners after they have reached $75 million in profit (profit meaning revenue minus expenditure). Mining companies are also eligible for partial profit offsets when they raise between $75 million and $125 million.

The government argues that the tax is applied uniformly across Australia, and therefore there is no discrimination between states.

It also argues that the tax is imposed only on mining companies, not on people at the higher level of government, and thus cannot interfere with the ability of the states to make their own choices, including how they encourage economic development.

Commonwealth Solicitor-General Justin Gleeson, SC, is expected on Thursday to outline the federal government’s position, including the argument that any inequalities in the amount of tax paid by mining companies in different states are caused by the royalty regimes of the states, rather than by the Commonwealth’s mining tax.

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Canberra warned over spectrum sale

Dr Robert Pepper. Photo: Pat ScalaGovernments should not use spectrum auctions to extract revenue from telecommunication companies, a top executive from US-based global technology giant Cisco has warned.
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The comment comes as Canberra prepares for the so-called digital dividend auction, which includes spectrum used for the 4G super-fast mobile network.

The spectrum is in the 700Mhz band and 2.5Ghz band, at present devoted to analog television signals. Next month’s auction is expected to fetch billions for the federal government as it takes bids from carriers such as Telstra and Optus.

Robert Pepper, who was also the head of policy development at the US Federal Communications Commission, said: ”The benefit is getting the spectrum into the hands of people who are going to build out and use it, provide services and compete. It is not about maximising auction revenue.

”My philosophy, when I was at the FCC, was not about the money. In fact, in the US, we are prohibited by law to take into account how much money is raised from spectrum.”

In marked contrast to the US policy, the Australian government has a stated policy objective to raise revenue from the spectrum auction. Communications Minister Stephen Conroy described the spectrum last year as a premium public asset. ”This spectrum is seen as the ‘waterfront property’ of spectrum and the government has made a significant investment to free it up. It is important that we get a reasonable return on this valuable public asset.”

In January he announced the formula for the minimum floor price for spectrum. Industry analysts and telcos at the time said it was too expensive by international standards. Vodafone, the third largest telco in the country, said it would not bid at the price.

Dr Pepper said spectrum should be cheaper.

On the topic of the national broadband network, the Cisco executive said any plan needed to be future-proofed.

”Globally what we will see is fibre either to premise or fibre very close to premise,” he said. ”The best global practice is to have a network that is future-proofed that can support very high bandwidth and low latency [delay].”

There has been an ongoing dispute between the government and the Coalition over the NBN. The government wants to connect premises with fibre-optic cable, while the Coalition believes the NBN should use part of Telstra’s existing copper network for the ”last mile” connection to the premises. Dr Pepper doubted whether copper could handle the exponentially growing data demand.

”If you are going to bring fibre all the way up to the neighbourhood, you want to be able to bring that capability to the premises.”

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Better way to tackle big banker’s bonuses

Anger in Europe over executive pay is finding its way into legislation. The European Parliament, backed by almost all the European Union’s finance ministers, plans to cap bankers’ bonuses, and 68 per cent of Swiss voters endorsed a referendum initiative to ban ”golden parachutes” and put other curbs on bosses’ pay.
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Agitated voters, grandstanding politicians and intelligent policy rarely go together, and this is a case in point. Let’s agree that people are right to be disgusted. In the past decade top bankers led the world into the deepest economic slump since the 1930s, and their banks had to be rescued by taxpayers, yet the culprits aren’t exactly suffering. In most cases they still have their jobs and by ordinary standards they’re still outrageously well-paid. Bonuses – whose purpose, one is always told, is to reward excellent performance – have fallen but are still being handed out.

Meanwhile, lower down the capitalist food chain, workers are being laid off or told to take pay cuts. It’s tough out there, say chief executives, and we all have to make sacrifices. Absolutely, say Europe’s ministers of finance; that’s why we have to cut essential public services and raise taxes.

Considering the complacency, lack of contrition and in many cases sheer nerve of those responsible for the calamity of the past five years, the miracle is that the popular backlash against capitalism has been so mild. But being morally in the right isn’t enough. If policy is to serve voters’ interests, rather than gratify their anger, it has to be carefully designed. These initiatives aren’t.

The first question is whether it’s wise for the government to have any kind of say on how companies pay their executives. Straight away there’s a crucial distinction – between banks and financial enterprises that enjoy an implicit public subsidy (through the prospect of a bailout if they get into trouble) and ordinary public companies that don’t.

If taxpayers are exposed to losses, regulators are not just entitled to monitor and curb the risks that banks are taking, they’re obliged to. This obligation includes regulating pay structures, since those can influence the amount of risk a bank takes on.

So doesn’t capping bonuses serve that purpose? Not really. It’s bewildering, first of all, that Europe’s parliament is insisting on bonus caps in return for consenting to new international rules on bank capital. Requiring more capital is the best and simplest way to reduce the banking subsidy and hence the incentive to take undue risks. The new rules don’t go nearly far enough in this respect. Rather than calling for them to be strengthened, the parliament wants a concession on bankers’ pay. Go figure.

The parliament wants to limit banking bonuses to 100 per cent of salary, or 200 per cent if shareholders approve. There’ll be loopholes, of course, but for the sake of argument let’s assume they aren’t exploited and the policy works as intended. Banks will simply fold average variable pay into basic salary. Most likely, such limits won’t do anything to cut bankers’ pay overall, the very issue that upsets the public.

One remedy is not a cap on bonuses, but rules that lock them up and grab them back if things go wrong. Bankers should be made to retain a stake in their company’s losses. Big bonuses relative to basic salary – so long as they can be clawed back – would serve that purpose well.

Bloomberg

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We can’t match America’s muscle

Why has the US sharemarket reclaimed its pre-financial crisis high when the Australian sharemarket is still 25 per cent short of it? Because in important ways, the Americans are better than us.
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The US economy was the epicentre of the global crisis and half a decade later it is still struggling. Its debt-to-GDP ratio is too high at about 75 per cent and is expected to grow by less than 2 per cent this year, as automatic government spending cuts totalling $US85 billion feed in.

Australia’s new national accounts reveal this economy expanded by 3.6 per cent last year.

The annual run rate was 2.6 per cent in the second half of the year and the Reserve Bank is watching the slowdown closely, but Australia will log its 22nd year of growth in 2013 and probably outpace America.

Sharemarket investors buy the near future, rather than the present or a more distant future where, in America, structural problems become impossible to ignore. When they look at the US market they see potential. They also see better value: even after racing ahead of Australia to reclaim its pre-crisis high, the American market is cheaper.

The surge in America’s jobless rate that accompanied the global crisis came as companies laid off workers. The productivity gains that flowed will be largely retained as new jobs are created. After falling from 10 per cent cent in October 2009 to 7.9 per cent, America’s jobless rate is still 2.5 percentage points higher than Australia’s, but it is falling.

Australia is posting productivity gains after losing its way for most of the past decade. The gain in 2012 was 3.3 per cent, better than the 2.5 per cent growth rate in the mid-’90s, when Australia famously collected a deregulation dividend. National productivity will get another boost as resources projects that have sucked up capital begin producing and generating returns. Companies are also on efficiency drives as they look to offset soft demand.

If you are betting that this economy will be more productive than America’s over the long term, you are assuming a sea change. However, America’s long-term productivity growth rate of about 2.2 per cent a year is twice as good as Australia’s.

The US economy is also on the verge of harvesting an economic dividend as its massive reserves of shale gas underpin a heavy industry renaissance. Cheap domestic gas will deliver a cost advantage for decades.

American intellectual property sits behind market hot spots including information technology, and US companies are being protected in their deep home market and supercharged in export markets by a US dollar that is being kept low by the US Federal Reserve’s zero-interest-rate regime and quantitative easing. They hold record cash reserves of about $US5 trillion, have healthy balance sheets after the crisis purge and are borrowing money at historically low rates.

Australia has higher borrowing costs and higher domestic energy costs, and its currency is at levels that hurt export competitiveness and open up companies to low-priced import competition. External factors including zero interest rates and quantitative easing in America are behind the Australian dollar’s strength, but it is what it is.

This economy is also attempting a delicate shift in activity to the industrial sector as the resources boom cools. Private capital expenditure led by the miners contributed almost two-thirds of Australia’s 3.6 per cent GDP growth in 2012, but it fell by 6 per cent in the December quarter and will fall more this year. The question, not answered in the latest national accounts, is whether the non-mining economy will accelerate and close the gap.

Despite all that, and despite the fact the S&P/ASX 200 share index is 25 per cent below its November 2007 high of 6828.7 points, the Australian market is more expensive than Wall Street.

The Dow Jones Industrial Average, which hit new highs on Tuesday night US time, is valued at about 12.5 times expected earnings in the next year. The S&P index of 500 top US shares is 1.6 per cent below its high and valued at 13.6 times expected earnings. Our S&P/ASX 200 is trading at 14.5 times expected earnings.

While the resources boom was raging, cracks in the industrial economy were being papered over. Now the boom has cooled. Commodity prices have eased, mining profits and mining company share prices have fallen and as interest rates and the Australian dollar remain relatively high, pressure on the industrial sector continues. Earnings growth has been outpaced by share price rises and our market has moved to a price-earnings premium.

Australian companies still offer dividend yields that look good compared with fixed interest and the productivity gains are great news. A fall in the value of the dollar will be a game changer, and it will eventually happen. For now, though, this market has some pressure points. It is short of its pre-crisis high for good reason.

[email protected]上海夜网m.au

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A weaker dollar would benefit those with northern exposure

As the Australian dollar drifts lower it is worth revisiting stocks whose earnings get a boost from a weaker currency.
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There are a host of stocks with substantial northern hemisphere operations that can benefit from a softer local currency. These include James Hardie, News Corp, Treasury Wine Estates, Sims Metal, Cochlear and Computershare. Others cheering the Aussie lower are domestic companies competing against cheap imports. Among this group are BlueScope, Capral and Select Harvest.SDI Ltd

A smaller company that should thrive in a lower-dollar environment is dental manufacturer SDI (ASX code SDI). We wrote about the company last year, emphasising the cost reduction program under way, a move that inspired a doubling of the share price. The company recently upgraded its earnings guidance for the year to June 30, 2013, to between $4 million and $5 million net profit. This places the company on a price-earnings (P/E) ratio of about 13 times.

SDI generates about 90 per cent of its income offshore, in Brazil, the US and Europe. The Aussie has been weaker against all three currencies in recent months, providing a tailwind for SDI’s earnings.

A further benefit is the softness in the silver price. SDI’s amalgam products require a significant amount of silver to manufacture.Mayne Pharma

Another company that could look smart if the currency descends below US96¢ is pharmaceutical upstart Mayne Pharma (MYX), revamped with the arrival of Scott Richards as chief executive.

When the Australian dollar was trading around $US1.04 in October, the company announced the acquisition of US-based generic drug developer and manufacturer Metrics Inc for $US120 million. The deal was struck on a historical earnings before interest, tax and depreciation (EBITDA) multiple of about six times. Metrics swamped the existing Mayne business and effectively made the company a pharmaceutical play in the US.

Mayne said in its half-yearly results that Metrics was operating to budget. This has proved sufficient to push the stock up 10 per cent to 42¢, more than double where the company struck its rights issue to buy Metrics.

It is difficult to justify Mayne’s valuation on 2013 earnings but with a full-year contribution from Metric in 2014 it should be able to generate EBITDA of about $30 million, for an EBITDA multiple of 8.3 times. While this is not cheap, Richards will use the Metrics acquisition as a launching pad to build a larger US operation.K&S Corp

The Melbourne-based transport group (KSC) has been on a tear over the past year, jumping 70 per cent compared with a 15 per cent rise in the All Ords.

We wrote about the stock last year when the share price was $1.60, believing it offered the dual attraction of a cheap entry into a cyclical upswing in the economy and the injection of fresh management. Today it’s $2.30.

The company lived up to its word by announcing earnings of 11.3¢ a share for the first half, up 37 per cent on the previous corresponding period, achieved on a modest 8 per cent increase in revenue, showing how leveraged a transport business can be. It also benefited from a robust performance of K&S’s West Australian Regal Transport.

It must be remembered that besides the strong results in WA, few areas are firing for K&S. It has a major exposure to the much-maligned domestic steel industry and the depressed housing market.

If we double the first-half result, the company is trading on a 2013 price-earnings (P/E) multiple of 10 times. This compares favourably with the larger Toll Holdings that has jumped out to a P/E of 13.

[email protected]上海夜网m

Fairfax Media does not take responsibility for stock tips.

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Lenders find it tougher going in Asian markets

Two of the biggest foreign banks in Asia have underlined the tests facing lenders in the region, as profits are constrained by slower growth and stiff competition.
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In a sign of the challenges facing ANZ, which is targeting Asian banking as a key source of growth, UK-listed Standard Chartered reported slowing income growth in several key Asian markets, as its 2012 profits edged up by less than 1 per cent to $US4.79 billion, compared with 12 per cent growth a year earlier. Standard Chartered, heavily focused on emerging economies, said its income growth in Hong Kong had slowed to 6 per cent, from 19 per cent in 2011, and income in Singapore rose 5 per cent, compared with 27 per cent a year earlier.

While it had experienced a surge in income from China, the bank described the previous year as ”challenging” and predicted this would continue into 2013.

London-based HSBC, one of the biggest banks in the world with a major presence in Asia, also this week reported that its net interest margin had narrowed in the year to December to 2.32 per cent, from 2.51 per cent a year earlier.

Group finance director Iain Mackay said its margins in Asia outside Hong Kong had been squeezed by the slump in global interest rates, but were holding up ”remarkably well”. He made the comments after HSBC handed down a 6 per cent slump in pre-tax profit to $US20.6 billion, after it was hit with hefty fines in relation to money-laundering charges in the US and Mexico.

The results come after ANZ Bank last month said its margins had been squeezed by more competition in Asian markets, which are also a focus for Commonwealth Bank, NAB and Westpac.

Although HSBC and Standard Chartered were optimistic about China’s growth prospects, their results highlighted the challenge created by economic uncertainty and more competition in the region. HSBC chief executive Stuart Gulliver said the bank was expecting economic growth of 8.6 per cent in China this year, compared with growth rates in developed economies of just 1 per cent.

”Whilst the operating environment for financial institutions remains difficult, our core business will continue to reap the benefit of recovering economic growth in mainland China and its positive impact on other faster-growing regions,” he said.

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House brands squeeze out Tahbilk

Over a barrel: The high dollar and private-label brands are taking their toll.Establishment winemaker Tahbilk has fingered private-label wines and low-cost imported wine for swamping liquor store shelves and reducing the space once given to proprietary brands.
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Tahbilk chief executive Alister Purbrick said the growth in house-brand wines was not limited to the major liquor chains owned by Woolworths and Coles, but was also becoming a feature of the large independent banner and supermarket groups.

The other hidden impact, according to Mr Purbrick, was the strength of the Australian dollar, which made imports more competitive.

”So you have got the double whammy of own-brand and imports taking space away from us, up go our promotional slot costs and there is less opportunity for us in any case,” he said.

Mr Purbrick said Tahbilk would walk away from uneconomic promotional and discount deals with retailers.

Last year Ross Brown, the former boss of 121-year-old winery Brown Brothers, used an industry function to launch a spray against leading retailers for flooding stores with private-label wines that he said were ”hollow”, ”copycats” and ”masquerading as real brands”.

The retail squeeze affected Tahbilk’s sales for the 2012 financial year, with domestic sales weaker for the 153-year-old winemaker. But the resilience of its popular Tahbilk Wine Club bolstered the bottom line and allowed the family-owned company to post an improved full-year profit.

Revenue for 2011-12 was $13.187 million, down slightly from $13.675 million in the previous year, while pre-tax profit increased to $776,768 from $736,430. However, after accounting for a dividend payment of $113,805, Tahbilk’s full-year profit was $51,168 against $235,137 recorded in 2011-12.

”Our wine club generates about 65 per cent of the total Tahbilk branded sales,” Mr Purbrick said.

He said the wine club allowed the company to perform well in the face of the strong Australian dollar and collapsing margins.

”There is not a lot of margin in exports, so the best way to describe our exports at the moment is that we have them in a holding pattern. We are not going out aggressively to grow because we can’t make margin out of it, but we want to maintain our presence in those markets.”

China is still a growth market, as the exchange rate with the yuan is more favourable to exporters such as Tahbilk.

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Fels calls for tougher laws

Twenty years after the toughening of the competition test for mergers, the architect of the changes, Professor Allan Fels, has called for more action to deter anti-competitive behaviour by large companies.
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Speaking at an event in Sydney to mark 20 years of the merger test, Professor Fels said Parliament should consider tougher laws to deal with creeping acquisitions. He also wants more effective laws on abuse of market power by large companies and powers to seek court orders for divestiture when they abuse their power.

His suggestions come as the Australian Competition and Consumer Commission investigates whether the big two supermarkets, Woolworths and Coles, are misusing their market power to exploit suppliers. Banks have also come under scrutiny over their failure to pass on interest rate cuts.

As chairman of the Trade Practices Commission and later the ACCC, Professor Fels was instrumental in convincing the government in 1993 to change the law so mergers could be blocked if they were likely to lead to a substantial lessening of competition.

Before that, mergers were blocked only if a company would dominate the market.

The change, fiercely opposed by business, gave the ACCC teeth to block several mergers, though it has still allowed powerful duopolies to develop in supermarkets, hardware, airlines and packaging.

Professor Fels said it was time for more change. For instance, when a large retailer acquired a small shop in a country town, the effect might be profound in the town, but would not fall foul of the current test, which requires a substantial lessening of competition.

”It would be useful if the law more explicitly addressed creeping acquisitions,” he said.

In the case of section 46 abuse of market power cases, Australia had opted for a requirement to prove that the actions were for the purpose of abusing that power.

”The US and the European Union have an effects test and it is much better to focus on the economic outcome of the act,” Professor Fels said. ”Our system induces a cops-and-robbers mentality, where regulators are focused on finding emails and the like to prove the purpose.”

A change in the test would be significant for the supermarket suppliers who allege the big two use their power to drive down prices of commodities such as milk.

He also wants divestiture added to the armoury of penalties, though the penalty should be available only where a court has established abuse of market power.

”It would add much more clout to the act if companies knew there was a prospect of divestiture,” Professor Fels said.

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