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Development of Competition Policy,
Economic Benefits and Reform
Processes:
Australia’s experience
Paul Gretton
3rd ASEAN-CER Integration Partnership Forum
Competition Policy: the CER approach
18 June 2013
Productivity Commission
This presentation will cover
• Background to reform in Australia
• National Competition Policy Reform
• Productivity Commission assessments of
reform impacts
• Current reform agenda
• Some key messages
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The Australian Federal system – two
sovereign political bodies, one geography
Northern
Territory
Queensland
Western
Australia
South
Australia
New South
Wales
Victoria
Australian
Capital
Territory
Tasmania
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The Australian Federal system – division of
powers
• The Australian Government
• Powers determined by Constitution (1901)
• Defence, foreign affairs, international trade, customs,
currency
• State governments have residual powers
• Powers over state owned and unincorporated enterprises,
• Provision of health, education, law and order & other
services
• Allocation of taxing powers
• Changed significantly since federation in 1901
• Australian Government raises more revenue than
expenditure obligations – States raise less
• Reform with inter-jurisdiction dimension needs
to be cooperative
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Australia’s economic reform imperative
Per capita GDP ranking in OECD declined
1
Australia ranked
4th
in 1950
2
3
4
5
6
7
8
9
10
11
12
13
Australia ranked
14th
in 1983
14
15
2006
2008
2000
2002
2004
1996
1998
1990
1992
1994
1986
1988
1980
1982
1984
1974
1976
1978
1970
1972
1964
1966
1968
1960
1962
1954
1956
1958
1950
1952
16
Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009
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Policy settings behind poor performance
• Fragmented, high cost manufacturing
• Protected by tariffs and tariff-quotas
• Inflexible work practices
• Low innovation and skill development
• High cost utility services
• Government infrastructure monopolies
•
State – electricity, gas, water, ports, rail
•
Australian government – communications
• Regulated markets
• eg agriculture, mining, professional services
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Progression of reform in Australia’s federal
system
• Removal of export licensing (mid-1960s)
• Trade liberalisation (from 1973)
•
•
•
•
Capital market liberalisation (from 1983)
Pro-competitive reforms (from mid-1980s)
Labour market deregulation (from mid-1980s)
Human services administrative reforms (from late 1980s)
• A coordinated ‘National Competition Policy’ (from 1995)
• … complemented by macro policy and taxation reform (GST)
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Trade liberalisation – lower industry protection
Effective rate
of assistance
Per cent
40
35
Manufacturing
30
25
20
Agriculture
15
10
5
0
1970-71 1975-76 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2010-11
Source: Productivity Commission, Trade & Assistance Review, 2011-12, Annual Report Series, June 2013
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National Competition Policy (NCP)
• Coordinated and systematic approach to reform
• Manifested in establishment of Committee of Inquiry into
National Competition Policy in Australia (1992)
• Agreed in 1995 by Council of Australian Governments
(COAG)
• COAG Membership – Prime Minister & state premiers
• Sets reform agenda & policy directions
• …for policy reforms of national significance which
require cooperative action by Australian governments
• By 2005 some matters still outstanding & further reform
potential identified
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National Competition Policy framework
• Competition Principles Agreement
• Policy objectives and directions
• Conduct Code Agreement
• Extension of Australian Government Trade
Practices Act to include ‘exempt businesses’
• Complementary state legislation
• Implementation agreement
• Competition payments to states – redress vertical
fiscal imbalance, direct incentive to reform
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What Australia’s National Competition Policy did
• Extended coverage of competition law
• Gov’t businesses, unincorporated entities
• Reform of public monopolies
• Structural reforms to public utilities eg separated
commercial & regulatory functions
• Prices oversight of monopoly services by independent
authorities – electricity, communications
• Third party access to infrastructure – railways, pipelines
• Initiated systematic review of all anti-competitive
regulation
• ~1800 items (eg agricultural marketing arrangements)
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What the ‘related’ infrastructure reforms were
• Commenced in late 1980s
• Affected key infrastructure sectors
• Electricity – establishment of national electricity
market, structural separation, corporatization …
• Gas – removal of barriers to interstate trade,
corporatization …
• Road transport – greater uniformity of regulation
(driver licensing, standards & vehicle registration)
• Water & sewage – corporatization, pricing …
• Implemented through intergovernmental
agreements
• Some government enterprises also privatized –
but not reform requirement
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Productivity Commission review - Productivity
growth in major reform sectors over 1990s
raised GDP
Percentage
points
Total
2.5%
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…and increased household incomes
Percentage
change
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Opening of economy and reform improved
Australia’s relative economic performance
Per1 capita GDP ranking in OECD countries
2
3
Australia ranked
4th
in 1950
Australia back to
5th
in 2008
4
5
6
7
8
9
10
11
12
13
Australia ranked
14th
in 1983
14
Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009
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2006
2008
2002
2004
2000
1996
1998
1992
1994
1988
1990
1984
1986
1980
1982
1976
1978
1972
1974
1968
1970
1964
1966
1960
1962
1958
1954
1956
1950
1952
15
Key National Competition Policy success factors
• Wide recognition of need for national reform
• Agreement to reform agenda by Council of
Australian Governments (COAG)
• Presumption in favour of competition
• Effective implementation mechanisms
• Common principles
• Independent oversight & monitoring bodies
• (ACCC, NCC)
• Financial incentives – payments to States
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Continuing national reform
• Reform imperative remains
• Globalisation, Environmental management, Ageing of
population
• COAG’s current reform agenda has 3 streams
• Competition and regulation stream
• NCP continued
• Human capital stream
• Reforms to raise workforce productivity & participation
• Education, health, workforce participation
• The environment stream
• Covering key environmental issues such as carbon
emissions & water management
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COAG’s current implementation framework
• Supported by Intergovernmental agreements
• National Agreements (mainly ongoing activities),
National Partnership Agreements (mainly new policies),
& Implement plans
• Progress monitoring by COAG Reform Council
• Independent reporting on impacts & benefits by
Productivity Commission every 2-3 years
•
•
•
•
Terms of Reference from Assistance Treasurer
Bring evidence on realized and potential impacts
Quantify economy-wide, regional & distributional effects
Assessment if scope for improvement
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The Commission is to report every 2 to 3
years on economic impacts of COAG reforms
• Inaugural report released April 2012
• It covered
• 17 ‘Seamless National Economy’ deregulation priorities
• Vocational education and training (VET)
• Required to provide information on
• Economy-wide impacts, regional & distributional
impacts
• Whether Australia’s reform potential is being achieved,
& opportunities for improvement
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Business cost savings (gross) considered
possible through SNE reforms
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Achievement of cost saving would raise GDP
• … by $6 billion in current dollars per year
• $3.6 b Direct benefits from cost reductions
• $2.4 b Indirect benefits
• Majority of these gains could accrue by 2020
100
Share of gains
realised over
time
80
60
40
Continued
efforts
required to
achieve gains
20
0
-20
2007-08
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2014-15
2021-22
2028-29
2035-36
2042-43
21
2049-50
Vocational education — Higher attainment could
raise national output in longer run
$ billions (2010-11)
30
25
20
15
Reforms yet to be
implemented
Reforms
implemented
10
5
0
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• Some increases in training
activity achieved already –
should deliver gains
• Reaching COAG target would
require additional educational
resources
• As always, projected outcome
sensitive to modelling
assumptions
• Net gains sensitive to ‘cost
effectiveness’ of educational
service delivery and relevance
of qualifications
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Key messages
• Ongoing pressure to maintain/enhance international
competitiveness
• Need high level political commitment and constant
attention
• Establish & maintain workable framework suited to local
conditions
• Clear idea of reform objectives
• Appropriate incentives for change
• Effective implementation, including independent
monitoring & review
• Community awareness of economy-wide gains
• Socialise economic benefits
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www.pc.gov.au
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