Development of Competition Policy, Economic Benefits and Reform Processes: Australia’s experience

Paul Gretton 3 rd 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 Productivity Commission 2

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

Western Australia Productivity Commission Northern Territory Queensland South Australia New South Wales Victoria Australian Capital Territory Tasmania 3

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 Productivity Commission 4

Australia’s economic reform imperative Per capita GDP ranking in OECD declined

1 2 3

Australia ranked 4th in 1950

4 5 6 7 8 9 10 11 12 13 14 15 16

Australia ranked 14th in 1983

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009 Productivity Commission 5

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 Productivity Commission 6

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) Productivity Commission 7

Trade liberalisation – lower industry protection Effective rate of assistance Per cent

40 35 30 Manufacturing 25 20 15 10 5 Agriculture 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 Productivity Commission 8

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 Productivity Commission 9

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 Productivity Commission 10

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) Productivity Commission 11

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 12

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

Percentage points Total 2.5% Productivity Commission 13

…and increased household incomes

Percentage change Productivity Commission 14

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

Per capita GDP ranking in OECD countries 1 10 11 12 13 14 15 2 3 4 5 6 7 8 9

Australia ranked 4th in 1950 Australia ranked 14th in 1983 Australia back to 5th in 2008

Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009 Productivity Commission 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 Productivity Commission 16

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 Productivity Commission 17

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 Productivity Commission 18

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 Productivity Commission 19

Business cost savings (gross) considered possible through SNE reforms

Productivity Commission 20

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 2014-15 2021-22 2028-29 2035-36 2042-43 Productivity Commission 21 2049-50

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

$ billions (2010-11) 30 25 20 15 10 5 0 Productivity Commission Reforms yet to be implemented Reforms implemented • • • 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 22

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 Productivity Commission 23

www.pc.gov.au

Productivity Commission 24