Productivity Commission Development of Competition Policy, Economic Benefits and Reform Processes: Australias experience Paul Gretton 3 rd ASEAN-CER Integration

Productivity Commission

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 2

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


The Australian Federal system – two sovereign political bodies, one geography

WesternAustralia

NorthernTerritory

Queensland

SouthAustralia

New SouthWales

Victoria

Tasmania

AustralianCapitalTerritory


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


Australia’s economic reform imperative

Per capita GDP ranking in OECD declined1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

Australia ranked 14th

in 1983


in 1950

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009


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


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)


Trade liberalisation – lower industry protection

Effective rate of assistance

Per cent

19 19 19 19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 200

5

10

15

20

25

30

35

40

Manufacturing

Agriculture

Source: Productivity Commission, Trade & Assistance Review, 2011-12, Annual Report Series, June 2013


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


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


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)


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


Productivity Commission review - Productivity growth in major reform sectors over 1990s raised GDP

Percentage points

Total 2.5%


…and increased household incomes

Percentage change


Opening of economy and reform improved Australia’s relative economic performance

Per capita GDP ranking in OECD countries

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008


in 1950


in 1983

Australia back to 5th

in 2008


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


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


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


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


Business cost savings (gross) considered possible through SNE reforms


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

Share of gains realised over

time

Continued efforts

required to achieve gains

-20

0

20

40

60

80

100

2007-08 2014-15 2021-22 2028-29 2035-36 2042-43 2049-50


Vocational education — Higher attainment could raise national output in longer run

• 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

0

5

10

15

20

25

30

Reforms yet to be implementedReforms im-plemented

$ billions (2010-11)


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


www.pc.gov.au

Documents

Productivity Commission Development of Competition Policy, Economic Benefits and Reform Processes: Australias experience Paul Gretton 3 rd ASEAN-CER Integration