The government’s merger reforms – as announced on Wednesday by Treasurer Jim Chalmers – herald a significant shake-up for competition policy in Australia. Once implemented, they will deliver direct benefit to consumers, small business, farmers and even big business itself (although it will deny it).

The reforms will strengthen merger law and compel it to operate more efficiently and less legalistically. They will be implemented at a time when there is increasing evidence of the damaging impact of reduced competition in Australia.

The key change is to move merger decision-making from the courts to the Australian Competition and Consumer Commission. This will mean more economics and less legalism. As a safeguard, however, there will be a right of appeal to the Australian Competition Tribunal, which is headed by a judge and includes members from the business community and economists. Historically, the tribunal has not hesitated to overturn commission decisions, as it did recently in the ANZ/Suncorp merger.

The introduction of compulsory pre-notification of big mergers is a no-brainer. Nearly every other OECD country has this. Australia’s an outlier. The combination of ACCC decisions, compulsory notification, and some other proposed procedural reforms will lead to better and quicker processes.

The test relating to which mergers should be rejected has been significantly improved. The current law requires the ACCC to prove in a court of law that the merger would substantially lessen competition.

Courts are good at deciding what has happened in the past; say a crime. However, they struggle with attempts to prove future economic outcomes of complex mergers. Moreover, the current legal interpretation of the words “substantial lessening of competition” has led to more of a focus on the uncertain and hard to ascertain likely behaviour of a market sometime in the future. The more tangible and immediate effect on the degree of concentration and the structure of the market has tended to be downplayed.

The government has made a much-needed clarification to the “lessening of competition” test: it will now apply if the merger “creates, increases or entrenches” substantial market power. This will emphasise the effect on the structure of the market.

The need for this key change has been magnified by the fact that these days, the ACCC – competent and formidable litigator that it is – often faces an army of corporate lawyers and silks, economists, consultants, business advisors, and well-rehearsed business witnesses in court. This has contributed to a recent string of losses in merger cases.