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

Productivity Commission 3 The Australian Federal system – two sovereign political bodies, one geography Western Australia Northern Territory Queensland South Australia New South Wales Victoria Tasmania Australian Capital Territory

Productivity Commission 4 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 5 Australias economic reform imperative Per capita GDP ranking in OECD declined Source: The Conference Board and Groningen Growth and Development Centre, Total Economy Database, January 2009

Productivity Commission 6 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 7 Progression of reform in Australias 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 8 Trade liberalisation – lower industry protection Effective rate of assistance Per cent Source: Productivity Commission, Trade & Assistance Review, , Annual Report Series, June 2013

Productivity Commission 9 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 10 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 11 What Australias National Competition Policy did Extended coverage of competition law Govt 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 12 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 13 Productivity Commission review - Productivity growth in major reform sectors over 1990s raised GDP Percentage points Total 2.5%

Productivity Commission 14 …and increased household incomes Percentage change

Productivity Commission 15 Opening of economy and reform improved Australias 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

Productivity Commission 16 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 17 Continuing national reform Reform imperative remains Globalisation, Environmental management, Ageing of population COAGs 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 18 COAGs 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 19 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 Australias reform potential is being achieved, & opportunities for improvement

Productivity Commission 20 Business cost savings (gross) considered possible through SNE reforms

Productivity Commission 21 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

Productivity Commission 22 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

Productivity Commission 23 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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