Selector with some truth... must be the politician playbook didn't realise they did the same in 2008
Taxpayers – Treated Liked Mugs
It has taken twelve months but the Australian Competition & Consumer Commission (ACCC), just like past inquiries, has come up empty-handed. Having been egged on by the Labor Government, and supported by the other parties, including the Liberals, the ACCC launched a review on potential price gouging by the major supermarket chains Woolworths and Coles. Under the guise of high inflation, the two supermarket chains and their executives were put under enormous public pressure, which resulted in Government Senate inquiries. Coinciding with this was the unexpected resignation of Woolworths CEO Brad Banducci, who wore the full brunt of accusations from all political quarters.
In reality, the high inflation experienced resulted from the excess demand stimulus from budget handouts and low interest rates that spilled over the economy’s disrupted supply lines. At its conclusion, the 441-page review delivered in midMarch found nothing of real substance, confirming once again that the supermarket industry is a rational, albeit imperfect market. Supporting this were some key findings. Most notably, over the past five years, grocery prices have risen by 24% compared to 22% for other goods and services, less than the increase recorded in other developed economies.
Businesses will always respond to competition and the supermarket industry is no exception. Aldi’s success is a testament that consumers will go where value, price and service are on offer. Today, the $120b grocery sector is still dominated by leaders Woolworths and Coles, with respective stakes of 38% and 20%, followed by Aldi at nine per cent and IGA at seven per cent. Aldi is noteworthy, having invested as much as $7b over two decades to carve out a meaningful offering. History has a funny way of repeating itself. In 2008, under the same premise of governments looking to blame someone, the Rudd Government directed the ACCC, led by Graeme Samuel, to undertake a review of the supermarket sector.
We highlighted this review in our March 2024 Selector Quarterly newsletter. Our article, “The greatest risk”, referenced the role that regulatory risk plays when considering any investment undertaken. The following is an extract from that article. "Any investor intending to put capital to work will consider the associated risks. Among all the potential pitfalls, regulatory risk remains our primary concern. Governments have form. They act when cornered and their actions are regularly justified based on fairness and economic reform. These actions often stem from political motives, serving as distractions from more pressing hot-topic agenda items. Businesses and individuals face the wrath of these regulatory shifts. Nevertheless, any elected government or regulatory body that follows due process is entitled to make changes, irrespective of external opinions. Concerns for businesses arise when they become targets of regulatory attention. Take for instance, the current inquiry initiated by the Federal Government into our supermarket operators. Pressured to address cost-of-living challenges, the Government has ordered the ACCC to conduct a new investigation into supermarket pricing. This 12-month review will focus on ‘industry gouging’ and follows a previous inquiry undertaken in 2008." The findings from the 2008 review were no different to today's current outcomes as Eric Johnston, a journalist at The Australian, noted at the time: “There was no evidence of gouging. Indeed, that probe, headed by Graeme Samuel and concluded in 2008, found supermarket retailing was workable competitive in Australia and there was barely any link between rising food prices and profits… Don’t conflate food inflation with gouging. It’s little wonder the 500-page report sank without a trace.” Treasurer Jim Chalmers attempted to put a spin on this latest report by asserting that, because of the inquiry, Australian shoppers would no longer be “treated like mugs” by major supermarket chains, claiming an “ongoing supermarket crackdown” to ensure better checkout deals. Selector Funds Management 53
Unfortunately, the only fallout here is how governments misuse their power, often at the expense of ordinary consumers and businesses. To have held two inquires with the same outcomes is not only a waste of money and time but a reflection of society and governments seeking to shift the blame. Where Australians are being "treated like mugs" is how taxpayers are gouged on tax rates that are not indexed. We comment on this in our opening letter, noting that wage increases are pushing more people into higher tax brackets (not adjusted for changes in inflation), aptly termed 'bracket creep'. And for those who dismiss its importance, it lies at the heart of productivity loss, living standards and governments that abuse their roles. John Kehoe,
Economics editor for the Australian Financial Review, put the case forward on 26 February 2025 to explain why this behaviour needs urgent attention. “Plundering income tax is bad for the economy, productivity and living standards. Total federal spending forecast by Treasury at 27.2 per cent of GDP in 2025-26 will be the highest since the mid-1980s, before Labor’s Paul Keating and Peter Walsh took the axe to a bloated budget. In that past Labor spirit, a localised version of Elon Musk’s Department of Government Efficiency could be useful in Canberra right now. Undoubtedly, some of the extra spending in areas such as aged care and defence is necessary and unavoidable. But the problem is there has been no concerted effort to fund new expenditure with material spending cuts or explicit tax increases. The $49 billion National Disability Insurance Scheme grew an astonishing 20 per cent last year but has received only a nip and tuck. The hope that its future growth will be curtailed rests on a wing and a prayer. The spendathon is increasingly being whacked on the national credit card for working-age people and future generations to foot the bill. Economist Chris Richardson calculates that Labor’s $30 billion in extra annual spending decisions, since it was elected in May 2022, has delayed the capacity to offer bracket creep relief for a further five to six years. It explains why Ken Henry – and myself – have reluctantly said we must consider indexing income tax brackets to changes in inflation or wages. Otherwise, there is no restraint on taxing and spending. The historical effective average income tax rate in the first two decades of this century was about 23 per cent, according to economic modeller Chris Murphy. Even allowing for the stage three income tax cut worth about $23 billion a year, bracket creep is projected to lift the average tax rate by 2 percentage points to 25 per cent by 2028-29. Instead, of explicitly raising other taxes to pay for spending, politicians will resort to debt and income tax through bracket creep." If left unchecked the consequences are not good, as Kehoe concludes: "If governments want to increase spending, they should either cut expenditure elsewhere or be honest enough to outline explicit tax increases. Plundering income tax is not only unfair to working-age people – current and future, but it is also bad for the economy, productivity and living standards. Higher income tax is one of the more economically damaging taxes because bracket creep ‘punishes innovation, enterprise and effort’, former Treasury Secretary Ken Henry says. The less economically damaging tax bases Australia should raise revenue from are consumption, road-user charges, land, carbon emissions and natural resources, he says. But in this election campaign, nobody is prepared to champion tax reform or spending cuts, beyond Dutton’s vague call to cull up to 36,000 public servants. Instead, bigger spending will be funded by imposing higher debts on future generations and the silent sucking of bracket creep." So, as we consider the latest ACCC findings, spare a thought for all those taxpaying mugs.