Competition policy

Paul Davidson, Economics

Key Issue
Competition reforms enacted more than 20 years ago have provided significant improvements to Australia’s overall welfare.
The issue facing the 45th Parliament is whether there is sufficient appetite to pursue further reforms in light of the recent competition policy review.

In 2013, the Abbott Government appointed Professor Ian Harper to review Australia’s competition policy. Professor Harper reported in March 2015 and the Government responded in November 2015.

The Harper Review (Harper) was the first holistic review of competition policy since the Review of National Competition Policy (NCP) in 1992–3, conducted by Professor Fred Hilmer. Indeed, several recommendations were identical to those put forward over two decades ago. Several of these reforms are the responsibility of the states and territories. In particular, recommendations related to reviewing planning and zoning laws, regulations affecting the taxi industry, and the regulation of retail trading hours.

Benefits of competition policy reform

In 1995, the Productivity Commission (PC) modelled the ‘outer envelope’ of potential gains of the Hilmer competition policy recommendations. It was found that real GDP would be 5.5 per cent higher once the productivity gains, service price rebalancing and other associated changes had fully worked their way through the economy.

In 1999, in modelling a subset of the NCP reforms of relevance to rural and regional Australia, the PC found that real GDP would potentially increase by around 2.5 per cent.

In 2005, in assessing some of the actual gains from the NCP reforms, PC modelling of productivity and price changes in large infrastructure sectors attributed to the NCP reforms (while only forming one part) indicated that real GDP had increased by 2.5 per cent, worth $20 billion in 2005.

Significant recommendations

Some of the central recommendations of Harper are set out below. See also: Australian Government response to the competition policy review recommendations: a quick guide published by the Parliamentary Library.

Improving institutional arrangements

Harper recommends the establishment of two bodies; the Australian Council for Competition Policy (ACCP) and a national Access and Pricing Regulator. The functions of the ACCP would include undertaking ‘market studies’; that is, to examine areas of the economy where competition issues may arise and provide recommendations to government. The other would take on the current functions of the ACCC and in effect be incorporated into an expanded role for the National Competition Council. The final roles and functions of both bodies would be discussed with the states and territories.

Introducing an ‘effects test’

At present, the misuse of market power provisions of the Competition and Consumer Act 2010 provides that it is the purpose of a corporation in engaging in proscribed conduct that (in part) determines whether the provision has been breached. Harper recommends that the test to be changed to ‘purpose, effect, or likely effect’. Essentially, the change will enable the court to look at the outcome (including the likely outcome) of the conduct, rather than merely its purpose or intent.

The recommendation is not universally supported—the PC says that it may lead to regulatory risks, and the Business Council of Australia and others say that it would amount to regulatory overreach and ‘chill’ pro‑competitive conduct. Even former chairs of the ACCC, Alan Fels and Graeme Samuel—in articles published the Australian Financial Review in early September 2015—do not agree on the possible consequences of introducing an effects test.

Competition in human services

Harper recommended that there should be a diversity of competing providers of human services to stimulate innovation in service provision and to give consumers choice. The recommendation foreshadows a new focus for governments being one of overseeing the impact of policies on users (‘stewardship’) rather than on service delivery. Harper cautioned governments that where they are involved in commissioning services, it should be done with a clear focus on outcomes.

The welfare gains from implementing competition policy reforms into human services are potentially significant—previous estimates by the PC suggested that improved productivity of health service delivery alone could implicitly boost household consumption by $40 per person in 2005–06 dollars.

Future competition policy

Harper recommends measures aimed at ensuring that competition policy remains of central relevance to governments. It recommends that governments commit to transparent competition principles, including:

all government regulation that binds public or private sectors should not restrict competition.
consumer choice in the funding, procuring or providing of government services should be promoted.
government procurement should separate the roles of policy (including funding), regulation and service provision, while also encouraging a range of providers.

When applying the competition principles, all governments should subject regulation to a public interest test to ensure that governments do not restrict competition unless it is in the overall community’s interest to do so, and that there are no other means by which the policy can be achieved.