Competition policy reforms in Australia

18 February 2014Matt Crooke, Minister-Counsellor (Economic)

Australian High Commission, New Delhi

Overview

• National Competition Policy– origins– key components– securing and maintaining support– outcomes and lessons for India

• Australia’s ‘Root and branch review’ of competition

Background

• Federation with three levels of government• Two types of government agencies at the

Commonwealth level– Government departments and independent

agencies

History to NCP – 70s and 80s

• Trade Practices Act introduced in 1974• Australian economy was heavily regulated:

– Fixed exchange rate/regulated financial sector– Trade barriers/tariff protected industries– Government ownership of utilities– Substantial price, product and wage regulation

• In the early 1980s, large scale reforms removed many of these restrictions– Created pressure on many industries to adapt

History to NCP – 90s• By the early 1990s, Australia recognised a need

for further microeconomic reform.

• Australia’s international competitiveness was lagging, and many sectors were highly inefficient; this was patently due to weak market forces at home.

• In 1992, an independent inquiry into the matter was launched – known as the Hilmer Inquiry.

History to NCP – 90s cont.• The Hilmer Report recommended sweeping changes

to Australia’s competition framework.

– Acting on the Report, Australia’s Federal and state governments agreed to the National Competition Policy Reform package in 1995.

• The overarching vision was to create national markets.

• This has further evolved into a guiding vision of creating a ‘seamless national economy’.

National Competition Policy• Agreed by all levels of government in 1995• Reforms include:

– Review of legislation that restricts competition– Universal application of pro-competitive

legislation, particularly the TPA– Reforms of public monopolies (transport,

electricity, gas and water)– Implementation of competitive neutrality to

government businesses– Third party access to significant infrastructure

Legislation review

• Guiding Principle:

– Legislation should not restrict competition unless it can be demonstrated that: the benefits of the restriction to the community as a

whole outweigh the costs; and the objectives of the legislation can only be achieved by

restricting competition.

Reforms to public monopolies

• Key principles for restructuring public monopolies include:– Separation of regulatory and commercial functions;– Separation of natural monopoly and potentially

competitive activities; and– Separation of potentially competitive activities into a

number of smaller, independent business units

• In addition, assets were privatised where government ownership was no longer justified.

Reforms to public monopolies – competitive neutrality

• A distinguishing feature of Australia’s reforms to public monopolies is the inclusion of competitive neutrality.– The Hilmer Review recommended that all levels of

government agree that government businesses should not enjoy any net competitive advantage by virtue of their public ownership.

Third-Party Access Regimes• The point of Third-Party Access Regulation is to promote

the economically efficient operation of, use of, and investment in infrastructure facilities with natural monopoly characteristics.

• This can help to promote effective competition in upstream and downstream markets.

– It is often economically inefficient to duplicate such infrastructure.

– ‘Standard’ market power provisions were seen as insufficient to deal with natural monopolies.

Implementing the NCP

• National Competition Council undertook implementation assessments

• Competition payments were made to the States based on those assessments

Securing support

• National Competition Policy agreement was a significant achievement

• Initial support achieved by drawing on evidence of potential gains

Maintaining Support

• Challenges of misinformation and vested interests – Seek to overcome by transparency and assistance

on case-by-case basis.• Broad nature of program

– Those who lose from one reform, gain from another

• Public interest– Any reform is in the community’s interest

Public interest test

• Environmental considerations• Social welfare and equity considerations• Occupational health and safety• Economic and regional development• Interests of consumers• Competitiveness of Australian businesses• Efficient allocation of resources

Outcomes of NCP

• 2005 Productivity Commission Review of National Competition Policy– Significant net economic benefit of the reforms

• Lessons from NCP inform current and future competition and deregulation reform agenda.

• Principles from NCP manifest in current policies, including current productivity-enhancing reforms.

Competition Policy Review

• The Government’s root and branch review of competition laws and policy will commence in early 2014.

• The review is intended to identify long-term improvements that can be made to the regulatory and policy framework to improve the productivity of the Australian economy.

Possible lessons

• Continue to build the case and be ready for opportunities – well-devised microeconomic reform improves peoples lives for the better

• Independent, vibrant public institutions that support reform and are as sector-neutral as possible – towards a vision of well-functioning national markets

• Allow forward-leaning jurisdictions to drive process and consider fiscal incentives in support of national reform outcomes

Competition policy reforms in Australia

18 February 2014Matt Crooke, Minister-Counsellor (Economic)

Australian High Commission, New Delhi