Rod Sims, Chairman of the Australian Competition and Consumer Commission The Mexico Forum 2013 Wednesday 9 January

Competition essentially drives productivity Competition best way simultaneously to drive growth and reduce income inequality Productivity drives national differences in GDP per capita Especially when pro competition reform reduces entrenched market power

1. Extend competition to all sectors 2. Strengthen and widen the reach of competition regulation

1. The changes that were made, the role of the National Competition Policy 2. The benefits from these reforms 3. Why and how these reforms were achieved 4. The lessons learnt, some of which I hope will be useful to you

AUSTRALIA’S RELATIVE DECLINE Per capita GDP (PPP) ranking in OECD Australia ranked 14 th in 1983 Australia ranked 4 th in 1950

TOTAL FACTOR PRODUCTIVITY GROWTH, %, average annual rate, OECD countries Australia with poor productivity performance OECD weighted average

MAJOR NATIONAL COMPETITION POLICY ELEMENTS Policy ElementExample 1. Limiting anti-competitive conduct of firmsCompetition conduct rules 2. Reforming regulations which unjustifiably restrict competition Deregulation of egg marketing 3. Reforming the structure of public monopolies to facilitate competition Restructuring of energy utilities 4. Providing third-party access to certain facilities that are essential for competition Access arrangements for the telecommunications network 5. Restraining monopoly pricing behaviourPrices surveillance 6. Fostering “competitive neutrality” between government & private business Requirements for government businesses to make tax-equivalent payments

EXAMPLE OF INFRASTRUCTURE CHANGES FROMTO LATE 1980SLATE 1990S (USUALLY) Telecommunications  Government owned Telcom fully vertically integrated, essentially no competition  Pro-competition access regime plus auction of new licences creates many fixed line and mobile competitors Electricity  Each State owns a vertically integrated monopoly that faces no competition  Many electricity generation companies/retailers compete nationally across an interconnected east coast grid Gas  Trading only within State boarders, many barriers to trade  Interstate free gas trade; third party access regime to gas pipelines. Rail Freight  Each State has own rail freight monopoly, which is vertically integrated, and is loss making  Two privately owned competitors operating nationally formed out of previous State entities with separate rail track company

Road Freight  Different rules means trucks often cannot cross State boarders  National road freight rules and user charging, a national road freight market. Aviation  Separate publically owned domestic and international airlines, the latter strongly protected from competition  Qantas privately owned and flying domestically and internationally in an “open skies” environment Rural Water  Non tradable virtually free water entitlements create static water usage, particularly to low value activities  World leading water trading regime that separates water property rights from land title and allows temporary and permanent trading Urban Water  Non cost reflective pricing; in some cases no usage based charges  Largely cost reflective pricing; many cross subsides removed

EXAMPLES OF OTHER REFORMS 1. Deregulation of retail trading hours 6. Removed restrictions on health professionals 2. Reduced controls on liquor licensing 7. Free up grain export marketing 3. Reduced business licensing ‘red tape’ 8. End price and supply restrictions on eggs and poultry 4. Streamlined development assessment processes 9. Remove dairy price and supply controls 5. Removed restrictions on the legal profession 10. Phase out non transferable fishery management licences

1. The changes that were made, the role of the National Competition Policy 2. The benefits from these reforms 3. Why and how these reforms were achieved 4. The lessons learnt, some of which I hope will be useful to you

FORECAST GROWTH AND REVENUE BENEFITS FROM NCP CHANGES 1995 $ GROWTH Real GDP5.5%$23 billion pa Real consumption$9 billion pa$1,500 per household Real wages3% increase Employment30,000 more jobs REVENUE Commonwealth$5.9 billion States; Territories, local government State $3.0 billion

CONTRIBUTION TO GDP GROWTH Percentage points Total 2.5% increase GDP

INCREASE IN REAL INCOMES FROM NCP REFORMS % change, to Household Income

EXAMPLE SPECIFIC SECTORAL GAINS Electricity prices fall 19% from early 1990s to 2004 Some coal rail freight rates fall 42% in second half 1990s Average telecoms charges fall by 29% for business and 17% for households from

TOTAL FACTOR PRODUCTIVITY GROWTH, VS Percentage Points, difference between average annual growth OECD weighted average Strong Australian performance

REAL GDP GROWTH, AUSTRALIA VS OECD Percentage Points, difference between average annual growth The National Competition Policy comes into effect

AUSTRALIA’S RELATIVE DECLINE AND RESURGENCE Per capita GDP (PPP) ranking in OECD Australia ranked 4 th in 1950 Australia ranked 14 th in 1983 Australia back to 5th in 2008

1. The changes that were made, the role of the National Competition Policy 2. The benefits from these reforms 3. Why and how these reforms were achieved 4. The lessons learnt, some of which I hope will be useful to you

 Prior to the NCP reforms Australia had experienced a decades-long debate over tariff reform  The Australian economy was performing poorly; challenges set by Treasurer and Prime Minister  With removal of the tariff wall, Australian industries were exposed to international competition, and had to adapt so demanded lower input cost structure  The public had the gains quantified by the respected Industry Commission  There was strong political leadership

 The formation of the Council of Australian Governments (COAG) brought together Australia’s Prime Minister and all State and Territory leaders to drive reform  While the main work was usually undertaken by industry experts, central agency people were closely involved  COAG created a new institution, the National Competition Council (NCC), as an independent body to assess the progress of all governments on implementing their agreed reforms  To encourage reform, the Federal Government established National Competition Payments  Formation of ACCC

1. The changes that were made, the role of the National Competition Policy 2. The benefits from these reforms 3. Why and how these reforms were achieved 4. The lessons learnt, some of which I hope will be useful to you

Ten lessons 1.Prepare the ground well before proceeding with reform 6. Provide generous financial assistance and/or incentives 2. Pursue reform on a board front 7. Get industry structures right 3. Formulate a well structured agenda that is not cluttered 8. Avoid seeking “national champions” 4. Bring high level political drive and constant attention 9. Privatise for competition and efficiency, not for maximum sale proceeds 5. Set a considered, not a frenetic pace 10. Remember that deregulation does not mean no regulation

“ In the life of a country, six years is a short period, but 2191 days are enough for laying the foundations for what now must be our goal: to make Mexico a prosperous country, with new opportunities and greater welfare for all ”