The government has backed away from a major reform to competition law, in what small and medium-sized businesses are calling a “spineless” capitulation to the alleged bullying tactics of big business.

The New Daily understands the Business Council of Australia (BCA), on behalf of companies like Woolworths and Wesfarmers, threatened to launch an anti-government campaign, similar to the one waged by the mining industry against the Rudd administration, if the government went ahead with the reform.

The reform, a key recommendation of this year’s Harper Review, would have made it easier for the Australian Competition and Consumer Commission (ACCC) to intervene when a big business uses its market power to damage or decrease competition.

• Consumers ignorant of credit card rip-offs
• Australia’s CEOs earn more than they admit
• Woolworths profits takes a battering

But on Tuesday the government announced that it was putting the reform on hold, in a move that went under the radar of most news outlets.

Master Grocers Australia chief executive Jos de Bruin told The New Daily: “I think the BCA has been running up and down the halls of parliament and instilling fear and uncertainty, particularly amongst the people in the cabinet.

“My belief is that the BCA has said to Cabinet – this is my belief only – ‘If you don’t drop this, we’re going to be putting together an anti-government campaign.’ And if you remember the mining tax, when the miners took Labor to task in the newspapers around the country, that’s the type of activity that I believe the BCA will engage in if they were to pursue this further.”

Sources close to the government also said the BCA had made such a threat.

Mr de Bruin said the government’s decision to cave was “spineless”.

Peter Strong, the head of the Council of Small Businesses Australia, told a similar story. He said the companies represented by the BCA – in particular Coles, Woolworths and Telstra – were the only “people that had a problem with the reform”.

“They’ve been stalking every Cabinet minister. You can’t move in parliament without turning around, and there’s someone from Coles or Woolies or the BCA. And what they’re saying is wrong.”

“The BCA is looking out for its members – good on them – but there’s only about ten members they’re looking out for.”

The New Daily asked the BCA if it had threatened to campaign against the government if it went through with the reform. It refused to confirm or deny the claim.

The Treasurer’s office also refused to deny the claim, deferring to the Minister for Small Business Bruce Billson.

Mr Billson has been a vocal supporter of the reform. His office said the reform was not off the table for good, but did not comment on the reasons for dropping it.

But comments from the small and medium-sized business lobby suggest the decision to defer the reform has created tensions in Cabinet.

What the reform would fix

Currently under Section 46 of the Competition and Consumer Act, if a company with ‘substantial power in a market’ engages in activity that damages competition – such as predatory pricing, bundling, and buying up land and leaving it unused – the ACCC can only intervene if it can prove two things.

First, that the big and powerful company acted with the intention to decrease or undermine competition; and second, that it took advantage of its power to do so.

Melbourne University competition lawyer Professor Caron Beaton-Wells said this creates “a rather unreal hurdle for the ACCC”. The Harper Review recommended that the law be changed to include an effects test. That would mean the ACCC could intervene if the company’s action actually resulted in a decrease in competition. The onus to prove intention – which she said is extremely difficult – would be scrapped.

Professor Beaton-Wells said the argument against the reform – which rests on the principle that will create uncertainty, thus chilling competition – is “legless”.

“It is a defence trotted out by big business time and time again every time a major reform to competition law is proposed. The record shows that it is not born out in practice,” she said.

On the subject of the influence of big business on politics, Professor Beaton-Wells said: “I think to say that big business carries enormous political sway … whether it’s on competition, tax reform, climate change action, or inaction as it may be, is trite. It is so obvious it’s trite.”